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Elder Force Index With ATR Channels

Adding Average True Range (ATR) channels to Force Index had been suggested by Kerry Lovvorn. Adding these channels turns Force Index into an excellent tool for identifying intermediate tops and bottoms. Force Index with ATR channels does not catch all turns, but the ones it identifies deserve very serious attention.

Note: the word “true” in Average True Range refers to dealing with price gaps. Since there are no gaps in Force Index, here ATR is the same as the Average Range.

Whenever the Force Index rises above or falls below its 3-ATR channel, it signals that the ticker has reached an area of an unsustainable extreme. That’s where rallies and declines become exhausted and prices tend to reverse. This is one of very few tools that are equally efficient in calling both top and bottom areas. Elder-disk places a red arrow above the plot when the EMA of Force Index rises above the 3-ATR channel. It places a red arrow underneath the plot when that EMA declines below the 3-ATR channel.

In our experience, these signals work especially well on the weekly charts. Of course, users are welcome to experiment with them in any timeframe.

To prevent any extreme value from flattening the rest of the plot, Force Index with ATR Channels is programmed to truncate values at the 4-ATR level. This feature can be disabled with the ‘Shrink values too high’ parameter (true = enabled, false = disabled).

The parameters are

  • Length for EMA of Raw Force Index (13) – the length for the EMA of raw Force Index
  • Length for EMA of Bands (21) – the length for the EMA of upper and lower bands.
  • Applied Volume (Tick volume) – the volume on which to apply the Force Index.
  • Shrink values too high (true) – specify whether the Force Index is truncated when it is greater than 4-ATR. Set it to False to keep the original value.
  • Color of spike signs (red) – the color of spike arrow sign.
  • Size of spike signs (2) – the size of the spike arrow sign.

You can choose which Force Index to use: the original “classical” version or the new one, with ATR channels. One possible option is to use the new Force Index with ATR Channels on your weekly charts and the original Smoothed Force Index on your daily chart.

Format Tips: Force index channel has 7 plots – the Force Index, the smoothed Force Index and upper and lower bands at 1, 2 and 3 ATR.

The Force Index is drawn in blue with a thick line. The Averaged Force is a solid red line. The upper and lower bands at 1 ATR are drawn in dotted lines. The upper and lower bands at 2 ATR use dashed lines. The upper and lower bands at 3 ATR are solid gray lines.

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