Sunday, 24 July 2011

Example - Force index bearish divergence

There are many people who talk about force index. My brokerage Iocbc do not have this indicator, thus I dont bother to go and learn.

However, curiosity overwhelm me yesterday. I went to download ChartNexus and read up about Force Index online.

In this post I shall share what I have learnt and understood from my research.

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

High positive values mean there is a strong rising trend, and low values signify a strong downward trend.

Force Index (1) = {Close (current period) - Close (prior period)} x Volume
Force Index (13) = 13-period EMA of Force Index (1)

To get the value for force index(13)
(1) Draw EMAC(13)
(2) Minus EMAC(13), example 1.1, of today against EMAC(13), example 1.08, of yesterday. You will get 0.02. If the volume today is 50000, Force Index(13) for today is 50000*0.02 = 1000, which is postive force index value above the zero axis. If today's value is lower than yesterday, you will get a negative force index.

Thus, 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 the prior close.

Let me share an example of Bearish Divergence for Force Index.


Chong Jun said...

Hey OT,

my experience with Dr Elder's tool tells me that it is always better to couple it with another trading tool like MACD which you have used in your chart instead of using it alone to judge.

For example, if we're just using Force Index alone to trade, we could have missed the bullish divergence that is pointed out by the MACD histogram but not force index.

My 2 cents. Good luck. :)

OT83 said...

Hi CJ,

Thanks for the advice.

I will try to use more than one indicator when using force index to trade.


la papillion said...


I've only two ways to use FI.

1) When there's a huge and deep spike down, it's time to enter. If there's a huge spike up in FI, the signal is not true.

2) ABCabc as applied to FI instead of macd histo. I seldom trade with FI alone - always macd histo divergence is my primary signal. The rest are peripheral.

OT83 said...

Hi LP,

I saw the point (1) in sell and sell short, I know spike down can buy but didn't realise opposite is not true.

Thanks. I will see MCAD divergence is the main while FI as peripheral.

Thanks for the clarification.

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