How To Trade - Elder's Force Index

1. The math behind the indicator is as follows:
(Latest Close - Prior Close) * Latest Volume

2. You then take the Exponential Moving Average of this number. Specifically, the conventional use is to focus on looking for the EMA over 2 and 13 periods.

3. The textbook rule is to trade in the direction of the 13 EMA. So, when the 13 EMA is positive, the trend is bullish and one wishes to look to buy; when it is negative, one is looking to sell. However, the conventional use is to look for the 2 EMA to be the opposite of the 13 EMA; meaning the following:

• if 2 EMA negative and 13 EMA positive == BUY
• if 2 EMA positive and 13 EMA negative == SELL
• if 2 EMA and 13 EMA both positive == NO SIGNAL
• if 2 EMA and 13 EMA both negative == NO SIGNAL

4. Another usage of this is as a divergence tool. When price reaches a new high but Force Index does not, it may signal a weakening trend; conversely, when price reaches a new low but Force Index does not, it could be interpreted as a sign that a reversal is imminent.