The Force index indicator tells you how much power is being used to move the price. This technical indicator is an oscillator, so it uses price movement and the volume of transactions to determine the strength of each move. You can use this indicator to identify points in the market that could act as turning points. A 13-period setting is usually used with this indicator. However, if you’re not a day trader, better results for a long-term strategy can be obtained by using a period of 50 or even 10.
The Force index can show you when the price is in a downtrend. At that point, the Force index will be below zero. Similarly, when the price is trending upwards, the Force index will be above zero. If a longer period is used, you’ll see fewer signals. This is why it’s important to choose a period that matches your own trading strategy. When you opt to use a shorter period, you will have more signals to use in your trading decisions but the line will become more choppy.
The Force index indicator provides you with volume information that you may not get with price alone. For example, if the price is gradually going lower but the index is moving higher, it could mean that an upward trend in price is losing strength. That means there could be a reversal and the price could start going in the other direction.
Calculating Force Index Indicator
In the calculations below, the following symbols are used:
FORCE INDEX (i)=- Force Index of the current bar;
VOLUME (i) = volume of the current bar;
MA (ApPRICE, N, i) = any Moving Average of the current bar for N period:
- Weighted or
ApPRICE =applied price;
N = period of the smoothing;
MA (ApPRICE, N, i-1) = any Moving Average of the previous bar.
Direction, volume and scale help to characterize the force of every market movement. A positive force arises when the current bar has a higher closing price than the previous bar. On the other hand, if the closing price of the current bar is lower than that of the previous bar, a negative force is in play.
If the difference in closing price between the two bars is significant, that means a sizable force is in play. This is true for either negative or positive forces. Similarly, you can detect that a great force exists if the volume of transactions is large, When the Force index technical indicator and the price start to diverge, it could be an indication that you’re about to have a change in the trend.
If you observe divergence while you are using the Force index, don’t assume that a reversal is immediately ahead. Sometimes there can be a divergence between the path of the price and the path of the Force index for a long time.