Force Index

This indicator aims to identify divergences and buy\sell signals. It considered the volumes of the instrument suggesting that when there is a lack of volume the market is prone to a reversal.

Calculation
Force Index = (Close of Today - Close of Yesterday) * Volume

Smoothing the Force Index is advised, as its raw values may be irregular which may lead to in false trading signals. Smoothing can be performing using the Exponential Moving Average over the Force Index.

Signals

  • When the Index is negative in a period of increasing tendency you should buy;
  • When the price reaches a new low, buy;
  • When the Index is Positive in a period of decreasing tendency you should sell;
  • When the price reaches a new high, sell;
  • If price changes do not correlate to the corresponding changes in volume, the force indicator stays on one level, which tells you the trend is going to change soon.


For short term trading use a 2-day EMA, and for intermediate term trading a 13-day EMA is recommended.