Force Index: Discovering Its True Potential
The Force Index is a technical indicator that’s created by Alexander Elder and it’s used in calculating the Bulls Power at every upsurge and down surge. This technical indicator links the main sections of market data. Approximation of this index with the aid of the moving average is advised. Although we can use this index just the way it is, approximation with the aid of a short moving average can help a lot in finding the best opportunity. When using short moving average, two intervals should be used. If on the other hand we apply approximations with long moving average (period 13), the Force Index would show the tendencies and their fluctuations.
We all know by now that the Force Index is a momentum indicator that considers volume. It is a highly accurate technical tool that can be used at almost no expense to the investor.
The three basic key components of the forex index are the trading volume, price change directions, and the extent of the price change. To measure accurately the power of bulls and bears in the market, investors can use the force index alongside the moving average. For greater predictive success Dr. Elder has been able to combine the force index and the moving average.
Looking at the mathematical calculations behind it, force index is calculated by taking away yesterday’s close from today’s close and multiplying the product by the day’s volume. The force is positive when the closing day’s price is higher than the previous. When we have a closing day’s price that’s lower than the previous day, them the force index is negative.
We use a histogram to plot the force index with the center line set as zero. A market that’s higher will produce a positive force index, and it’s plotted above the center line. A negative force index below the center line is indicative of a lower market. When the market is unchanged we see a force index that points on the zero line.
And the strength of the force is determined either by a larger change in price or a larger volume - either situation can independently influence the value and the change in force index.
Interpreting the Force Index Investors are willing to buy when the two-day exponential moving average of the force index is negative and when it is positive they sell. Traders sometimes trade the longer-term indicator, which is the 13-day exponential moving average of the force index. The buyers are in the driving seat when the force index crosses above the centerline. It is negative when the bears are in the driving seat.
We measure the day’s bulls/bears market winner by calculating the difference between the previous days’s closing price and today’s closing price.
We can go on further to use the force index on long term or short term trading purposes. It is effective when you use the 13-day EMA of force index for a longer term trading purposes, as I can point to the possibilities a sustained rally.
this indicator is the basic part of my technical anlayis bcs it give me day’s bulls/bears market winner by calculating the difference between the previous days’s closing price and today’s closing price.
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