The Elder Force Index is an indicator that uses price and volume to assess the power of a move or vary in turning points. It is developed by Alexander Elder. It was introduced in Alexander Elder’s classic book, Trading for a Living: Psychology, Trading Tactics, Money Management (Wiley Finance). The Force Index are three essential elements are direction, extent, and volume of a stock’s price movement. This indicator can be used to reinforce the overall trend, identify playable corrections or foreshadow reversals with divergences. The indicator not only reflects the market trend but also identify the divergence situation. Here, after describing the features and calculation method of the indicator, we will go for examples from different broker software platform.
Elder Force Index Indicator:
There are three factors in Elder Force Index values. First, the indicator is positive when the current close is above the prior close. The indicator is negative when the current close is below the prior close. Another, the extent of the move determines the volume multiplier. Bigger moves warrant larger multipliers that influence the Force Index accordingly.
The third and final element is volume, which, according to Elder, measures commitment. Volume plays a key role, big move on big volume produces a high Force Index values. Small moves on low volume produce relatively low Force Index values. Advantage on heavy volume is a strong commitment from buyers and sellers. The Force Index quantifies these three elements into one indicator that measures buying and selling pressure.
The calculation method is quite straightforward. In order to calculate Elder’s Forex Index, subtract the yesterday’s close price from today’s close and multiply the outcome by today’s volume.
(Yesterday’s close – Today’s close) x Today’s Volume
The force is positive if today’s closing price is higher than yesterday. On the other hand, if today’s closing price is low, the force is negative. Hence, the force strength is determined by the large scale of price change or volume.
Examples from Zerodha Kite
This indicator is available in the STUDIES section in Zerodha Kite.
This indicator can be used to reinforce or determine the trend. The Elder Force Index indicator’s default parameter is 13. For determining longer-term trend one can use a 100-day Force Index instead of a 13-day Force Index which is more volatile. Whereas a 100-day Force Index is smoother and crosses the zero line fewer times and this can be used to determine the medium or long-term trend. Check the image below:
In the image above the 100-day Force Index is corresponding to a resistance breakout on the price chart. The 100-day Force Index moved into positive territory and broke resistance in end of February. This indicator turned positive during the entire uptrend and see the big rally in Reliance Industries.
In, the chart we can see intraday charts of State Bank of India with the Force Index plotted on it. In Elder Force Index indicator chartists can use the divergence or trendline breaks on the price chart for confirmation of a bullish or bearish position.
An Example from Upstox
Previously, an example was given on the Zerodha kite platform. Now, let’s have a quick look at another example, taken from the Upstox trading table. The attachment is given below:
The above attachment is taken from the Upstox trading platform. The input procedure is quite easy. You can search your preferred script from the above search options. Like here, I add a script of AXISBANK. After adding a script go for indicator options. On the same row, you will get a time limit, indicator, chart pattern options. Through the indicator section, Elder’s Force Index is being added over there.
Now, let’s go through the forex index on the chart. According to the chart, when the indicator goes above 0 level, the market is considered as bullish. On the opposite side, If the elder goes below 0 level, the market is bearish. It is advisable to buy the stock below zero and sell above zero. For the short term, I use the 1-week time limit and Elder indicator period at 13.
Examples from FYERS
Here, we are trying to make you acquainted with the different trading platform by the elder force index indicator.
A new script is being added here, VEDANTA. In order to add any script first, you need to search for it. Then add specific indicators like here I add Elder’s Force Index. The Elder’s movements reflect the ups and downs of the market trend. If you notice carefully, you can see a similarity between the market trend and the specific indicator. Here, you may see a divergence form sometime.
In the chart parameters, the chartists can use a higher number for more smoothing or a lower number for less smoothing. This indicator uses both price and volume to measure buying and selling pressure. In the portion of the price covers the trend, while the volume portion determines the intensity. Chartists can use a long-term Force Index to confirm the underlying trend. When the 100-day Force Index is positive, then bulls have the edge. In all indicators, traders should use the Force Index in conjunction with other indicators. By using the particular indicator, traders can identify the overbought and oversold situation also. When the price level moves to the up extreme level, consider as the overbought level. When the price is down it creates oversold. After the overbought situation, the seller’s power will at an extreme level and after the oversold, buyers power will be the highest.
Categories: Technical Indicators