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Oscillators > Force Index

Article/Author: Dr. Alexander Elder

File Includes: Indicator - Force Index

Category: Indicator > Oscillators

Description:

This Indicator plots the Force Index as described by Dr. Alexander Elder in "Trading For a Living." The ForceIndex indicator relates price to volume by multiplying net change and volume. ForceIndex is calculated using the following equation:

ForceIndex = Volume(today) * (Close(this period) - Close(last period))

ForceIndex is typically presented as two smoothed averages (slow and fast) to avoid false signals.

Usage:

The raw index is rather erratic and better results are achieved by smoothing with a 2-day or 13-day exponential moving average (EMA).

- The 2-day EMA of Force is used to track the strength of buyers and sellers in the short term;
- The 13-day EMA of Force measures the strength of bulls and bears in intermediate cycles.
- If the Force index is above zero it signals that the bulls are in control. Negative Force index signals that the bears are in control. If the index whipsaws around zero it signals that neither side has control and no strong trend exists.

The higher the positive reading on the Force index, the stronger is the bulls' power. Deep negative values signal that the bears are very strong. If Force index flattens out it indicates that either (a) volumes are falling or (b) large volumes have failed to significantly move prices. Both are likely to precede a reversal.

Only trade in the direction of the trend - indicated by the slope of the 13-day EMA. Go long if the Force index is below zero and there is a bullish divergence. Go short if the Force index is above zero and there is a bearish divergence. Inputs:

XLen1 - number of bars to calculate 1st moving average
XLen2 - number of bars to calculate 2nd moving average
FrceIdx - Force Index

EasyLanguage Code:
INPUTS: XLEN1(3), XLEN2(13), FRCEIDX(V*(C-C));

VARS: ZERO(0);

PLOT1(XAVERAGE(FRCEIDX, XLEN1), "FAST AVG");
PLOT2(XAVERAGE(FRCEIDX, XLEN2), "SLOW AVG");
PLOT3(ZERO, "ZERO");