Join Courses
Attend Webinars
Get Free Counselling
  • Select Language
    • Hindi
    • Bengali
+91 9903 222 555
Elearnmarkets - Financial Market Learning
Join Courses Of Elearnmarkets
  • Basic Finance
  • Technical Analysis
  • Fundamental Analysis
  • Derivatives
  • Financial Planning
  • Miscellaneous
No Result
View All Result
  • Basic Finance
  • Technical Analysis
  • Fundamental Analysis
  • Derivatives
  • Financial Planning
  • Miscellaneous
No Result
View All Result
Elearnmarkets - Financial Market Learning
Home Technical Analysis
Force Index

How to identify trend and correction using Force Index?

Elearnmarkets by Elearnmarkets
October 12, 2017 - Updated on November 18, 2020
Reading Time: 4min read
4
1.1k
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

The Force Index measures the strength of the price move based on three important parameters which include volume, direction, and extent.

It was invented by Alexander Elder and this oscillator actually fluctuates around the zero line.

When the indicator goes from positive to negative, the uptrend possibly comes to an end and it marks the starting of the downtrend.

Similarly, when the indicator goes from negative to positive, it signals the beginning of an uptrend.

Table of Contents
Calculation
How is Forex Index helpful to traders?
Trend Identification/Confirmation
Identifying Corrections
Divergence
Bottomline

Forex Index Calculation

It is calculated as the difference between the current and the previous closing price multiplied by current trading volume.

The default period is taken as 13 period and the 13-period FI is computed by taking 13 period EMA of above calculated elder Index.

Force Index(1) = {Close (current period)  –  Close (prior period)} x Volume
Force Index(13) = 13-period EMA of Force Index(1)

How is Forex Index helpful to traders?

It primarily has three main uses which includes identifying corrections within the trend, trend confirmation and locating divergences.

Know More: Triple screen trading system: the Alexander Elder way of trading

Let’s understand each of these uses in detail-

Trend Identification/Confirmation

The indicator basically shows a strong shift in buying and selling momentum.

The traders want to be on the sidelines when this index clings close to the zero line as it indicates weak momentum.

When the Force index stays above the zero line, it signals an uptrend.

When it goes above the zero line forcefully, it shows strong buying pressure.

Similarly, when the Force index stays below the zero line, it signals a downtrend. When it goes below the zero line forcefully, it shows strong selling pressure.

elder force nifty chart

The above is the weekly chart of Nifty 50.

It is clearly evident that whenever the Force index is above the zero line, Nifty has been in a positive territory and has given a good up move.

Similarly, when the Force index is below the zero line, Nifty has given a good correction.

The farther the Force Index line away from the zero line, stronger is the trend.

Identifying Corrections

With the help of trend confirmation or identification and short term Force Index (say 2-period), one can find good entry points during the trending phase.

This is actually a very active strategy but if you want to decrease the number of trading signals, you may increase the time period on it.

During an uptrend, when the 2-period Force index goes below the zero line and then rallies back above zero, a buy signal is generated.

Similarly, during a downtrend, when the 2-period Force index goes above the zero line and then rallies back below zero, a sell signal is generated.

Force index

Divergence

Divergence takes place when both the price and the indicator are not moving in the same direction. Suppose the price is making higher high but the indicator is making a lower high and vice versa.

Also read: Dow Theory explained

Divergence basically shows weakness in the existing trend and signals either the magnitude of price or the volume is weakening.

It doesn’t provide any entry point or a trading signal rather alerts traders about a probable reversal in the coming period. However, a reversal could take a long time to happen or it may not come at all.

The traders who are unable to devote much time in analysing charts of various securities may benefit from scan section in StockEdge mobile app. It is also available on web in three different languages.

You can know more about StockEdge by watching the video below:

Bottomline

The force Index is a versatile indicator which actually combines both price action as well as volume to quantify a valuable metric.

It should be used in conjunction with price patterns and other indicators in order to filter out the divergence and also to trade the divergence in a better way.

Tags: advancealexander elderdivergencesenglishForce indextechnical analysistrend confirmationversatile indicator
ShareTweetShare
Subscribe To Updates On Telegram Subscribe To Updates On Telegram Subscribe To Updates On Telegram
Previous Post

Bank Nifty At Make Or Break Juncture, Korean Jitters Resurface

Next Post

Nifty Bounces From 20 DMA; Inches Towards All Time High

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Technical Analysis

Channel Chart Pattern – Formation, Types, and Trading

December 17, 2020
1.8k
Technical Analysis

Symmetrical Triangle Pattern – Meaning, Formation & Trading

December 8, 2020
1.7k
Technical Analysis

The Ultimate Guide to Triple Top and Triple Bottom Pattern

December 3, 2020 - Updated on December 7, 2020
1.1k
Technical Analysis

Pennants Pattern – Formation, Trading and how it is different from Wedges

November 26, 2020 - Updated on January 15, 2021
1.8k
Next Post
Nifty Hourly Chart

Nifty Bounces From 20 DMA; Inches Towards All Time High

Bank Nifty Hourly Chart

Bank Nifty Might Slip Into a Range For the Next Trading Session

Bank Nifty Hourly Chart

Bank Nifty Warms Up For Higher Frontiers

Comments 4

  1. Shekhar Kadam. says:
    3 years ago

    You guys are doing great job. Thank you so much.

    Reply
    • Ankit Jaiswal says:
      3 years ago

      Thanks Shekhar for your valuable feedback.

      Reply
  2. Roderick Mantilia says:
    11 months ago

    Thanks a lot. This is great content. I might share some for you guys too. Great work poster!

    Reply
  3. frolep rotrem says:
    10 months ago

    Great post. I was checking continuously this blog and I am impressed! Very useful information specially the last part 🙂 I care for such info much. I was looking for this certain information for a long time. Thank you and best of luck.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Download App

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

GET ARTICLES ON EMAIL

Enter your email address:

Categories

  • Banking
  • Basic Finance
  • Bonds & Fixed Income
  • Budgeting & Savings
  • Capital Markets
  • Charts
  • Charts, Patterns & Indicators
  • Commodity, Currency & FOREX Market
  • Derivatives
  • ETFs & Mutual Funds
  • Financial Planning
  • Financial Statement Analysis
  • Fundamental Analysis
  • Macroeconomics
  • Market Analysis
  • Market Updates
  • Market Wrap
  • Marketshala
  • Miscellaneous
  • Open Interest
  • Personal Wealth
  • Retirement Planning
  • Sector Analysis
  • Tax Planning
  • Technical Analysis
  • Trading Terms, Rules & Strategies
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

© 2020 Elearnmarkets All Rights Reserved

No Result
View All Result
  • Article Categories
  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Market Analysis
  • Miscellaneous
  • Technical Analysis
  • Select Language
    • Hindi
    • Bengali
  • Learn finance
  • Browse Courses
  • Webinars
  • Free Guides
  • Get Free Counselling

© 2020 Elearnmarkets All Rights Reserved