Force Index
The strength of market trends is determined by price and volume:
- Prices rise in bull markets and fall in bear markets
- Rapid price changes and high volumes indicate a strong trend
- Slow price changes and low volumes indicate a weak trend
The Force Index (FI) was developed by Alexander Elder, and combines price and volume to give the force behind market trends. The indicator is simple; it's the difference between the current and previous interval price, multiplied by the current volume:
- The FI is positive when the price rises
- The FI is negative when the price falls
- Large price changes and large volumes give large FI values
Although the indicator can be used as is, the prices are usually smoothed first:
- A 2 period moving average is used to open and close positions
- A 13 period moving average is used to identify trends and reversals
The indicator is interpreted as follows:
- Buy when the FI falls below zero during an upwards trend
- It's a continuation signal when the FI hits a new peak during an upwards trend
- Sell when the FI rises above zero during a downwards trend
- It's a continuation signal when the FI hits a new low during an downwards trend
- A stable FI indicates that the current trend may change soon
Calculation
The Force Index (FI) for a interval is the current price minus the previous price, multiplied by the volume. The price is smoothed using a moving average.
FI = ( MA( MATYPE, ApPrice, N, J ) – MA( MATYPE, ApPrice, N, J -1 ) ) * VOLUME( J )
MA is a moving average
MATYPE is the type of moving average – simple, exponential, smoothed or weighted
ApPrice is the applied price – open, close, high, low, median, typical or weighted
N is the number of intervals used for the moving average
J is the current interval
The same information about indicators can be found in Userguide of Metatrader 4 (Help – Help Topics – Analytics – Technical Indicators).
