Elder's Force Index (EFI)

Name Type Prerequisite Use Cases
Elder’s Force Index (EFI) Volume/Momentum OHLC Data Identifying the end of corrections within a trend.

Definition

The Force Index is an indicator that uses price and volume to assess the power behind a move or identify possible turning points.

Mathematical Equation

\[ \text{Force Index} = (\text{Close}_{\text{current}} - \text{Close}_{\text{prev}}) \times \text{Volume}_{\text{current}} \]

The result is typically smoothed with an EMA (e.g., 2-period or 13-period).

Special cases

  • Maximum possible value: Unbounded
  • Minimum possible value: Unbounded
  • Behavior: Fluctuates above and below zero based on price direction and trading volume.

Visualization

EFI

Trading Significance

  1. Trend Confirmation: Force Index confirms the trend. Positive values confirm uptrends; negative values confirm downtrends.

  2. Divergence: Divergences between 13-day EMA of Force Index and price often signal reversals.