The Force Index -- sometimes referred to as Elder's Force Index -- is an indicator created by Alexander Elder. The purpose of the indicator is to identify key moves in the market; moves that are characterized by big moves in price AND volume. As it incorporates volume, it is better suited for equities, futures, options, and exchange-based instruments; it is less relevant for forex. When forex platforms/charts offer the Force Index, they are using tick volume from their own network.
Trade the Force Index on the Forex.com Platform
Key points regarding the Force Index:
1. The math behind the indicator is as follows:
(Latest Close - Prior Close) * Latest Volume
2. You then take the Exponential Moving Average of this number. Specifically, the conventional use is to focus on looking for the EMA over 2 and 13 periods.
3. The textbook rule is to trade in the direction of the 13 EMA. So, when the 13 EMA is positive, the trend is bullish and one wishes to look to buy; when it is negative, one is looking to sell. However, the conventional use is to look for the 2 EMA to be the opposite of the 13 EMA; meaning the following:
-if 2 EMA negative and 13 EMA positive == BUY
if 2 EMA positive and 13 EMA negative == SELL
if 2 EMA and 13 EMA both positive == NO SIGNAL
if 2 EMA and 13 EMA both negative == NO SIGNAL
Another usage of this is as a divergence tool. When price reaches a new high but Force Index does not, it may signal a weakening trend; conversely, when price reaches a new low but Force Index does not, it could be interpreted as a sign that a reversal is imminent.
The charts used in the video below come from TradingView.com. If you are interested in using the Force Index on a forex platform, check out the Forex.com platform.
Read the original article here: http://www.informedtrades.com/860434...rce-index.html
Trade the Force Index on the Forex.com Platform
Inserted Video
Key points regarding the Force Index:
1. The math behind the indicator is as follows:
(Latest Close - Prior Close) * Latest Volume
2. You then take the Exponential Moving Average of this number. Specifically, the conventional use is to focus on looking for the EMA over 2 and 13 periods.
3. The textbook rule is to trade in the direction of the 13 EMA. So, when the 13 EMA is positive, the trend is bullish and one wishes to look to buy; when it is negative, one is looking to sell. However, the conventional use is to look for the 2 EMA to be the opposite of the 13 EMA; meaning the following:
-if 2 EMA negative and 13 EMA positive == BUY
if 2 EMA positive and 13 EMA negative == SELL
if 2 EMA and 13 EMA both positive == NO SIGNAL
if 2 EMA and 13 EMA both negative == NO SIGNAL
Another usage of this is as a divergence tool. When price reaches a new high but Force Index does not, it may signal a weakening trend; conversely, when price reaches a new low but Force Index does not, it could be interpreted as a sign that a reversal is imminent.
The charts used in the video below come from TradingView.com. If you are interested in using the Force Index on a forex platform, check out the Forex.com platform.
Read the original article here: http://www.informedtrades.com/860434...rce-index.html