Force Index Indicator Guide: Combining Price and Volume

The Force Index is a powerful oscillator developed by Dr. Alexander Elder that measures the "force" or power behind price movements by combining price change with volume. Unlike indicators that only look at price, the Force Index reveals whether strong or weak hands are driving the market. This guide will teach you how to use this unique indicator effectively in your trading.

What is the Force Index?

The Force Index measures the strength of bulls and bears by multiplying price change by volume. The concept is simple: a large price move on heavy volume represents significant force, while the same price move on low volume represents weak force. This helps traders identify whether moves are likely to continue or reverse.

How Force Index is Calculated

The basic Force Index formula is:

Force Index = (Today's Close - Yesterday's Close) x Volume

This raw calculation is very volatile, so traders typically apply an exponential moving average (EMA) to smooth it:

• 2-period EMA of Force Index: Short-term, shows immediate buying/selling pressure
• 13-period EMA of Force Index: Medium-term, shows longer-term trends in force

Interpreting Force Index

The Zero Line

• Above zero: Bullish force dominates (buyers in control)
• Below zero: Bearish force dominates (sellers in control)
• Crossing above zero: Potential bullish signal
• Crossing below zero: Potential bearish signal

Force Index Magnitude

• Large positive values: Strong buying pressure, often seen at trend continuations or exhaustion peaks
• Large negative values: Strong selling pressure, often seen at trend continuations or panic bottoms
• Small values near zero: Weak force, potential consolidation or trend weakness

Trading Strategies with Force Index

1. Short-Term (2-Period) Strategy

The 2-period Force Index is highly sensitive and good for short-term trading:

• Buy signal: Force Index drops sharply below zero in an uptrend, then starts rising
• Sell signal: Force Index spikes sharply above zero in a downtrend, then starts falling

Dr. Elder recommends using 2-period Force Index to find entry points during pullbacks in the direction of the trend identified by a longer-term indicator.

2. Medium-Term (13-Period) Strategy

The 13-period Force Index is smoother and better for identifying significant trend changes:

• Bull market confirmation: 13-period Force Index consistently above zero
• Bear market confirmation: 13-period Force Index consistently below zero
• Trend change signal: 13-period Force Index crosses zero in the opposite direction

3. Divergence Trading

Force Index divergences can signal trend reversals:

• Bullish Divergence: Price makes lower lows while Force Index makes higher lows. Selling force is weakening.
• Bearish Divergence: Price makes higher highs while Force Index makes lower highs. Buying force is weakening.

Divergences are particularly powerful with the 13-period Force Index.

4. Spike Analysis

Extreme Force Index readings often signal important turning points:

• Spike high: Extreme buying force may indicate exhaustion or climactic buying
• Spike low: Extreme selling force may indicate panic selling or capitulation
• Compare spikes to historical levels for that security
• Spikes are more meaningful when they occur at support/resistance levels

Combining Both Timeframes

Use both 2-period and 13-period Force Index together:

• Use 13-period Force Index to determine the trend bias
• If 13-period is above zero (bullish), look for 2-period pullbacks below zero to buy
• If 13-period is below zero (bearish), look for 2-period rallies above zero to sell
• This combines trend-following with optimal entry timing

Force Index in Dr. Elder's Triple Screen System

Force Index plays a key role in the Triple Screen trading system:

• First Screen: Weekly trend indicators (MACD histogram) determine market direction
• Second Screen: Daily 2-period Force Index finds entry points against short-term moves
• Third Screen: Trailing buy/sell stops for precise entry

Comparing Force Index to Other Indicators

• vs OBV (On Balance Volume): Both incorporate volume, but Force Index also considers the magnitude of price change
• vs RSI: RSI only measures price momentum, Force Index includes volume
• vs MACD: MACD is purely price-based, Force Index reveals if moves have volume support
• vs Elder Ray: Both by Dr. Elder. Elder Ray uses high/low, Force Index uses close and volume

Common Mistakes to Avoid

• Trading every zero-line cross: Not every cross is significant. Use trend confirmation.
• Ignoring volume quality: Some volume spikes are noise (ex-dividend dates, index rebalancing).
• Using raw Force Index: Always apply an EMA to smooth the raw data.
• Fighting the trend: Use Force Index to find entries in the trend direction, not against it.
• Not adjusting for different securities: Force Index values vary widely by stock price and average volume.

Practical Tips for Force Index Trading

• Establish trend first: Determine the overall trend before using Force Index for entries
• Use both timeframes: 13-period for trend, 2-period for timing
• Look for confluence: Force Index signals at support/resistance are stronger
• Monitor divergences: They often precede significant reversals
• Respect extreme readings: Spikes often mark important turning points
• Always use stops: No indicator is perfect; protect your capital

Summary

The Force Index is a unique oscillator that combines price movement with volume to measure the true power behind market moves. By revealing whether strong or weak hands are driving price action, Force Index helps traders make more informed decisions about trend strength and potential reversals. Whether you use it for short-term entry timing with the 2-period version or trend analysis with the 13-period version, Force Index adds valuable volume-based insight to your technical analysis toolkit.

Want to explore more technical indicators? Check out our guide on the Elder Ray Indicator or learn about the Commodity Channel Index (CCI).