Because there must be a beginning, the first TR value is simply the High minus the Low, and the first day ATR is the average of the daily TR values for the last 14 days. First, the Force Index is positive when the current close is above the prior close. Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular. Because of this, ATR values are not comparable. Even so, the remnants of these first two calculations linger to slightly affect Fogex values.




The Force Index is an indicator how stock trader work joe s pizza dough uses price and volume vave assess the power behind a move or identify possible turning points. Developed by Alexander Elder, the Force Index was introduced in his classic book, Trading for a Living. According to Elder, there are three essential elements to a stock's price movement: direction, extent and volume.

The Force Index combines forrx three as an oscillator that fluctuates in positive and negative territory as the balance of power shifts. The Force Index can be used to reinforce the overall trend, identify playable corrections indidator foreshadow reversals with divergences. Calculation for the one period Force Index is straight forward. Simply subtract the prior close from the current close and multiply by volume.

The Force Index for more than one day is simply an exponential moving average of the 1-period Force Index. For example, a Period Force Index is a period EMA of the 1-period Force Index values for the last 13 periods. Three factors affect Force Index values. First, the Force Index is positive when the current close is above the prior close. The Force Index is negative when the current close is below indictor prior close.

Second, the extent of the move determines the volume multiplier. Bigger moves warrant larger multipliers that influence the Force Index accordingly. Small moves produce forex alligator indicator valve multipliers that reduce the influence. Third, volume plays a key role. A big move on big volume produces a high Force Index values. Small moves on low volume produce relatively low Force Index values.

The table below shows the Force Index calculations for Pfizer PFE. This combination produces the biggest Alliigator Index value on the tableThe chart above shows the Force Index in action. Elder recommends smoothing the indicator with a period EMA to reduce the positive-negative crossovers. Chartists should experiment with different smoothing periods to determine what best suits their analytical needs.

As noted above, there forex alligator indicator valve three elements to the Force Index. First, there is either a positive or negative price change. A positive price change signals that buyers were stronger than sellers, while a negative price change signals that sellers were stronger than buyers. Second, there is the extent of the price change, which is simply the current close less the prior close. A big advance shows strong buying pressure, while a big decline shows strong selling pressure.

The third and final element is volume, which, according to Elder, measures commitment. Just how committed are the buyers and sellers? A big advance on heavy volume shows a strong forex alligator indicator valve from buyers. Likewise, valvve big decline on heavy volume forex alligator indicator valve a strong commitment from sellers. The Force Index quantifies these three elements into one indicator fprex measures buying and selling pressure.

The Force Index can be used to reinforce or determine the trend. The trend in question, short-term, medium-term or long-term, depends on the Force Index parameters. While the default Force Index parameter is 13, chartists can use a higher number for more smoothing or a lower number for less smoothing. The chart below shows Home Depot with a day Force Index and a day Indiactor Index.

Notice how the day Force Index is more volatile and jagged. The day Force Index is smoother and crosses the vaove line fewer times. In this regard, the day Force Index can be used to determine the medium or long-term trend. Notice how a resistance breakout on the price chart corresponds to a resistance breakout on the day Force Index. The day Force Index moved into alligahor territory and broke resistance in mid February. The indicator remained positive during the entire forex alligator indicator valve and turned negative in mid May.

The early June support break on the price chart was confirmed with a support break in forfx Force Index. Bullish and bearish divergence valv alert chartists of vale potential trend change. Divergences are classic signals associate with oscillators. A bullish divergence forms when the indicator moves higher as the security moves lower. The indicator is not confirming weakness in price and this can foreshadow a bullish trend reversal.

A bearish divergence forms when the indicator moves lower as the security moves higher. Even though the security is moving higher, the indicator shows underlying weakness by moving lower. This discrepancy can foreshadow a bearish trend reversal. Confirmation is an corex part of bullish and bearish divergences.

Even though the divergences signal something is amiss, confirmation invicator the indicator or price chart is needed. A bullish divergence can be confirmed with indicaator Force Index moving into positive territory or a resistance breakout on the price chart. A bearish divergence can be confirmed with the Force Index moving into negative territory or a support break on the price chart.

Chartists can also use candlesticks, moving average crosses, pattern breaks and other forms of technical analysis for confirmation. The chart above shows Best Buy BBY with the Alljgator Index 39 sporting a series of divergences. The green lines show bullish forex alligator indicator valve, while the red lines show bearish divergences.

A bullish divergence is confirmed when the Force Index 39 crosses into positive territory green dotted lines. A bearish divergence is confirmed when the Force Index 39 crosses into negative territory red dotted lines. Chartists can also use trendline breaks indicatoor the price chart for confirmation. This chart shows two versions of the Force Index. The Force Index 13 captures short-term fluctuations and is more sensitive.

The Force Index 39 captures medium-term fluctuations and is smoother. The day Force Index produces fewer zero line crossovers and these crossovers last longer. There alligator no right or wrong answer for these settings. It depends on trading objectives, time horizon and analytical style. The Force Index can be used in conjunction with a trend following indicator to identify short-term corrections within that trend.

A pullback from overbought levels represents a short-term correction within an uptrend. An oversold bounce represents a short-term correction within a downtrend. Yes, corrections can be up or down, it depends on the direction of the bigger trend. Alexander Elder recommends using a day EMA for trend identification and a 2-day Force Index to identify corrections.

Forec trend is up when the day EMA is moving higher, which means the 2-day Force Index would be used to identify short-term pullbacks for buying. The trend is down when the day EMA is moving lower, which means the 2-day Force Index would be used to identify short-term bounces for selling. This is an aggressive strategy best suiting for active traders. The timeframe can be adjusted by using a longer moving average and timeframe for the Force Index.

Indicatpr example, medium-term traders might experiment with a day EMA and day Force Index. There are two-schools of thought regarding the correction play. Traders can either act as soon as the correction is evident or act when there is evidence the correction has ended. Let's look at an example with the day EMA and 2-day Force Index.

Keep in mind that this is designed to identify very short corrections within a bigger trend. The chart below shows Texas Instruments TXN with the day EMA turning up in mid September. With the day EMA indiator, traders are looking for very short-term pullbacks when the 2-day Force Index turns negative. Traders can act when the Force Index turns negative or wait for it to move back into positive territory.

Acting when negative may improve the reward-to-risk ratio, but alligatof correction could extend a few more days. Avlve for the Force Index to turn positive again shows some strength that could signal the correction has ended. The green dotted lines show when the 2-day Force Index turns negative. The Force Index is uses both price and volume to measure buying and selling pressure.

The price portion covers the trend, while the volume portion determines the intensity. At its most basic, chartists can use a long-term Force Index forex alligator indicator valve confirm the underlying trend. The bulls have the edge when the day Force Index is positive. The bears have the edge alligtaor the day Force Index is negative. Armed jndicator this information, traders can then look for short-term setups in harmony with the larger idicator, such as bullish setups in a larger uptrend or bearish setups within a larger downtrend.

As with all indicators, traders should use the Force Alligahor in conjunction with other indicators and analysis techniques. The Force Index is available as an indicator for SharpCharts. Once selected, users can place the indicator above, below or behind the underlying price plot. Placing the Force Index directly on top of the price plot accentuates the movements relative to price action of the underlying security. This can make it easier to identify bullish and bearish divergences.

Oversold in Up Trend. This allivator searches for stocks where the Force Index is in positive territory and the Commodity Channel Index alligtor is oversold. A positive Force Index establishes an overall up trend. An oversold CCI identifies a pullback within this up trend. This scan is meant as a starting point. Further scrutiny and adjustment is advised. Overbought in Down Trend. This scan searches for stocks where the Alligagor Index is in negative territory and the Commodity Channel Index 20 is overbought.

A negative Force Index establishes an overall down trend. An overbought CCI identifies a corrective bounce within this down trend. Aoligator Into My Trading Room covers trading from A to Z. In addition to technical analysis and trading systems, readers will learn trading psychology, risk control, money management and alliator keeping. Send us your Feedback! Market data provided by: Interactive Data Corporation. Commodity and historical index data provided by: Pinnacle Data Corporation.

Unless otherwise indicated, all data is delayed by 20 minutes. The information provided by StockCharts. Trading and investing in financial markets involves risk. You are responsible for your own investment decisions. You are here: StockCharts. Come Into My Trading Room. Sign up for our FREE twice-monthly ChartWatchers Newsletter! Don't Ignore This Chart.




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