Elder's Force Index (FI)

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The Force Index (FI) is a technical analysis indicator that combines price movement and volume to assess the strength of buying or selling pressure in a financial instrument. Below is a structured breakdown of its use, effectiveness, and algorithm:

Use of the Force Index

Trend Confirmation

  • A rising FI confirms bullish trends (positive values), while a falling FI confirms bearish trends (negative values).
  • Helps validate breakouts; e.g., a price breakout with a high FI adds credibility.

Divergence Detection

  • Bearish Divergence: Price makes new highs, but FI declines (weak momentum).
  • Bullish Divergence: Price makes new lows, but FI rises (potential reversal).

Zero-Line Crossovers

  • Buy Signal: FI crosses above zero, suggesting upward momentum.
  • Sell Signal: FI crosses below zero, indicating downward pressure.

Effectiveness

Strengths

✅ Integrates volume, providing insight into the conviction behind price moves.✅ Effective in trending markets for confirming trends or reversals via divergences.✅ Customizable sensitivity via EMA period (shorter = more reactive, longer = smoother).

Limitations

False Signals: Prone to whipsaws in sideways markets.❌ Volume Dependency: Less effective in markets with unreliable volume data (e.g., cryptocurrencies).❌ Lagging Nature: Smoothed FI may lag during rapid price changes.

Best Practices

✔ Combine with trend-following tools (e.g., moving averages) or support/resistance levels.✔ Use divergences as secondary signals rather than standalone triggers.

Example Scenarios

📈 Strong Uptrend: Rising prices + increasing FI → bullish confirmation.📉 Breakdown with Weak Volume: Price drops but FI remains flat → suggests lack of selling pressure.

IN insurgent
insurgent
Updated Feb 14
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