## Definition

The Elder Force Index identifies the force behind the price move and helps locate key market reversals. it is denoted by EFI.

Introduced by Alexander Elder in his book, “Trading for a living (1993)”, the Forex Index measures the power behind the market rally.

According to Elder, every move has main elements: volume, extent, and direction. The indicator considers all these elements and moves like other oscillators in the positive and negative territory.

## Formula

The formula for the Elder Force Index is

*FI = {Close (current period) – Close (prior period)} x VFI (13)*

*Force Index (13) = 13-period EMA of Force Index (1)*

Where;

- FI = Force index
- CCP = Current close price
- PCP = Prior close price
- VFI = Volume force index
- EMA = Exponential moving average

## Calculations

To calculate the Elder Force Index, you need to follow certain steps.

First, you need to subtract the previous closing price from the current closing price and then multiply it by the volume.

By using the formula above, you can calculate a one-period force index. The calculation for more than one period is the EMA of that period. For instance, Force Index 13 is the EMA 13.

If the current closing price exceeds the previous close, the Force Index will be in positive territory. On the flip side, if the current close is less than the previous close, the FI will be in negative territory.

The extent of the price move determines the volume multipliers. If the move is bigger, multipliers will be big, and the Force Index will show a bigger extent.

If there is a high volume and there is a high price move, then FI values will be higher.

## Best settings for the Elder Force index indicator

The best settings for the indicator are

The length, by default, is set at 13. It suggests the length of the EMA. You can also set the higher period. A higher period suggests a higher Force Index value, suggesting a clear trend.

As for the timeframe, you should set the EFI on a higher timeframe, as it is prone to false signals on a lower timeframe.

## How to trade with the Elder Force Index?

Trading with the FI is straightforward; you only have to look at the indicator’s line.

If the FI line goes above zero, it suggests a stronger uptrend, and you can take long positions or exit short ones.

Conversely, when the indicator’s line goes below zero, it mentions a stronger downtrend, and at this, you can enter short or exit long positions.

It’s important to remember that during pullbacks and sideways moves, the FI will touch the zero line frequently. It suggests a decline in volume, so it’s better not to take positions at this point.

Also, the FI is not range-bounded like other oscillators. It can move above or below the extreme. However, this presents a chance for a trend reversal. For instance, if the FI is too high, it can signify a downtrend reversal. On the other hand, if the indicator is too low, it can show an uptrend reversal.

You can also find divergences with the Force Index. If the price makes a new high/low and the indicator moves in an opposite direction, it signifies a trend reversal.

## Advantages of the Elder Force Index

FI covers the most important aspect of price; volume, extent, and direction.

- You can calculate the indicator easily.
- Elder Force Index is easy to use for any trader.

## Elder Force Index vs. Money Flow Index (MFI).

Both indicators look identical when you apply the Elder Force Index and the MFI on the chart. Both are oscillators, and they have a single line that indicates the price trend. Also, they both use volume in their calculations.

However, the EFI is unbounded, while the MFI oscillates between 0 and 100.

Also, the MFI calculation is a bit more complex than Elder Force Index.

## Summary

The Elder Force Index is a simple oscillator that helps determine the overall trend. When the FI moves below the zero line, it suggests a downtrend, and when it goes above the zero line, it identifies an uptrend.

The indicator can be used as a secondary indicator in your trading strategies, and you can use the Elder Force Index and other indicators for further signal confirmation.