The Force Index indicator is an oscillator developed by Dr. Alexander Elder. The indicator combines price to volume relationship to determine the buyers and sellers strength in the markets. The relationship is then smoothed by a 13 period exponential moving average. Other typical settings include using a 2 period look back settings to determine the strength for the very short term.
The Force Index oscillator has the 0-line as its signal. When the Force index is above 0 it indicates that buyers are in control and thus points to rising prices and when the Force index drops below 0, it points to declining prices as sellers overpower the bulls. After establishing the value of the Force Index, a rising value points to an established uptrend, while declining values point to an established downtrend.
The Forex Index is calculated as Volume of the current bar multiplied to the difference between the moving average of the applied price of the current bar to the moving average of price one bar ago.
Alexander Elder recommended using a 2 period Forex Index indicator as well as part of Elder’s triple screen trading system that was designed by him. Besides the 0-line signals, the Forex Index can also be used to identify divergences to trade when the price is in an established trend.