Definition of 'Force Index'
The Force Index is an oscillator that fluctuates above and below zero. It combines price movement and volume to assess the force behind price movements and spot potential trend changes. Use the following calculation to produce a 1-period Force Index:
Investopedia explains 'Force Index'
Alexander Elder, a trader and author, introduced the Force Index in his book, Trading For a Living. Many traders use the 13-period Force Index, but longer-term traders may use a longer period, such as a 100-period Force Index. The longer the period, the less volatile the index, and the fewer warning signals it will generate.
A cross above or below the zero line signals an upward or downward (respectively) price move is possibly beginning. False signals are common with the 13-period Force Index. Increase the period to reduce the number of false signals.
When the Force index is moving higher and the price is moving lower, it warns the price downtrend is losing power and could soon reverse. When Force Index is moving lower as the price is moving higher, it warns the price uptrend is losing power and could soon reverse. Divergence is not a timing signal though, as the indicator and price can diverge for extended periods of time before an actual price reversal occurs.
The Force Index is commonly used with other trending indicators, such as a moving average to filter trade signals.