Elder's Force Index, developed by Dr Alexander Elder, measures the force behind price movements by combining three essential elements: direction of price change, magnitude of that change, and volume. The raw force index is smoothed with an exponential moving average to create a practical oscillator that identifies trend strength, potential reversals, and the best pullback entries during an established trend.
The raw force index equals the price change multiplied by volume for each period. A two-period EMA of the force index highlights short-term turning points for entry timing. A thirteen-period EMA of the force index identifies the intermediate trend direction. Positive force index values indicate buyers are in control; negative values indicate seller dominance. Divergence between the force index and price reveals weakening momentum. Spikes in the force index indicate climactic volume events that often precede reversals.
Enter long when the thirteen-period force index is positive (uptrend) and the two-period force index dips below zero (pullback). Enter short when the thirteen-period force index is negative (downtrend) and the two-period force index rises above zero (pullback). Divergence: price making new highs with a declining force index suggests the rally is weakening. Enter after a force index spike and reversal at a key support or resistance level.
Exit long positions when the thirteen-period force index turns negative, signalling a trend change. Exit short positions when the thirteen-period force index turns positive. Use the two-period force index crossback through zero as a short-term exit signal. Close positions when a climactic force index spike indicates exhaustion.
Daily, Weekly
The force index is most effective as part of Elder's Triple Screen trading system, where it serves as an entry timer on the intermediate timeframe. Its strength lies in combining direction, magnitude, and volume into a single indicator, providing a more complete measure of market conviction than price-only oscillators. Use the two-period version for entry timing and the thirteen-period version for trend identification.
The Money Flow Index is a volume-weighted RSI that measures buying and selling pressure by incorporating both price and volume data. It oscillates between 0 and 100, with readings above 80 considered overbought and below 20 considered oversold. Because it includes volume, MFI often provides earlier reversal signals than standard RSI, making it particularly effective for identifying exhaustion moves.
The Accumulation/Distribution Line measures the cumulative flow of money into and out of an asset by examining where price closes within its range relative to volume. Unlike OBV, which only considers whether the close is up or down, the A/D Line weights volume by the close's position within the bar's range, giving a more nuanced picture of buying and selling pressure.
Volume Weighted Average Price (VWAP) represents the average price an asset has traded at throughout the session, weighted by volume. It serves as a dynamic intraday fair-value benchmark used by institutional traders to gauge execution quality. For retail traders, VWAP acts as a powerful support/resistance level and trend filter — price above VWAP suggests bullish intraday bias, while price below suggests bearish bias.
Chaikin Money Flow (CMF) measures the accumulation or distribution of an asset over a specified period by combining price and volume data. It oscillates between -1 and +1, with positive values indicating buying pressure and negative values indicating selling pressure. CMF differs from other volume indicators by incorporating both the close location within the bar and the volume, then averaging the result over a lookback period.