The Force Index is a technical indicator that uses price and volume to assess the power behind a move or identify possible turning points. It is developed and designed by Alexander Elder, then he introduced introduced the indicator in his classic book Trading for a Living. Elder claims that there are three essential elements to a stock’s price movement: direction, extent and volume. The Force Index combines all three as an oscillator, which fluctuates in positive and negative territory as the balance of power shifts. This indicator is also able to reinforce the overall trend, identify playable corrections or foreshadow reversals with divergences.
Its calculation formula is the following:
Force Index (1) = (Close(current Period)-Close(previous period))*volume.
Force Index (13) = 13 EMA of Force Index (1)
The calculation of this indicator is not complex. For the current Force Index it will be prior close subtracted from the current close multiplied by volume. For any other Force Index it will be simply EMA of Force Index (1) of that period.
Force index indicates either positive or negative. It consists of a zero line. If the indicator is above zero line the force index is positive. Analogically, if it is below zero line it is negative. If there is a positive change, this means that buyers are stronger than sellers. If we have negative change, then sellers are stronger than buyers.