Force Index
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Description
Elder developed the Force Index to "measure the force of bulls behind every rally and of bears behind every decline." The Force Index is calculated by multiplying the volume by the difference in the latest two closing prices. Elder recommends smoothing with a long-term moving average to reveal major changes and a short-term moving average to pinpoint entry and exit points.
When the Force index reaches a new high or low it signals that the prevailing trend is strong and likely to continue. However, a flattening in the Force Index signals a change in trend.
In conjunction with a trend-following indicator, Elder recommends using the Force Index. Market signals occur when the short-term EMA of the Force Index turns negative during uptrends or positive during downtrends prices fall to a new low while the Force Index makes a more shallow bottom prices rise to a new high, but the Force Index rallies to a lower top.
A trend-less market is indicated when the long-term moving average of the Force Index flutters around zero.
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