Description
The force index is a technical analysis indicator, that calculates the strength of a price change using a combination of the prices and the volume. The force index is displayed as a single line that oscillates above and below zero, and it therefore looks similar to other oscillating indicators such as the Commodity Channel Index. However, the force index is different from most indicators in that it uses the price change, the direction of the price change, and the volume. The force index is displayed on its own chart (separate from the price bars), and is the lower section of the example chart.
Calculation
- Description: The force index (FI) is calculated using the most recent closing price (Cn), the previous closing price (Cn-1), and the most recent volume (Vn).
- Calculation:
FI = (Cn - Cn-1) * Vn - Example:
FI = (1.2508 - 1.2489) * 15004 = 28.5706
Trading Use
The force index is a measure of whether the buyers or sellers are in control of a particular market. In general, if the price is moving upwards, and the force index is above zero and rising (i.e. showing that the buyers are stronger than the sellers), then the upwards price movement is likely to continue. However, if the price is moving upwards, but the force index is at or moving towards zero, the buyers and sellers are becoming equal, so the upwards price movement is likely to stall temporarily or stop completely. The reverse of each of these scenarios is true for downwards price movements.
As the force index can be quite jagged (as seen in the example chart), it is often smoothed by a moving average. Short term moving averages of the force index are usually used for short term trading (i.e. day trading), while longer term moving averages of the force index are used for medium and long term trading (i.e. swing and position trading).
