The Force Index Indicator was developed by the Alexander Elder. He introduced this indicator in his book ‘Trading for a living’ in 1993. Force Index Indicator measures the amount of power that is used to move the price of a currency. It is an oscillator that essentially measures the force behind the bullish and bearish trends in the market. According to the Elder, there are three essential elements to a currency’s price movement, which are direction, volume and extent. This indicator combines all these three forces and fluctuates in both positive and negative territories. Traders primarily use this indicator to find out the market trend, the breakout confirmation and also the potential turning point by looking for divergences.
- When the indicator is above the zero-line, it indicates the bullish momentum.
- When the indicator goes below the zero-line, it signals the bearish momentum.
Force Index = (Today’s close – Yesterday’s close) x Volume
The default setting of FII
The default setting of the indicator is the 13-period average. Traders can change it according to their style of trading. For intraday trading, it is recommended to use the default period setting. But if you are an investor, use the 100-period average to trade the market. If you use the low period average, this indicator generates more signals, but a few of them can be false signals. By using the higher average fewer signals are generated, but the signals will be accurate.
Installing ‘Force Index Indicator’ in MT4 (step-by-step process)
The indicator is available in the MT4 Terminal by default. You can follow the below steps to add this indicator to your charts.
Open your MT4 Terminal, click on Insert > Oscillator > Force Index.
A new window will appear, and here you can change the settings according to your preference.
As you can see, we have applied the Force Index Indicator to the AUD/JPY 15-minute chart.
Force Index Indicator – Trading strategy
Force Index and Moving Average
If the FII is crossing the zero line from above, it means that the trend is downtrend. Likewise, if this indicator is crossing the zero line from below, it means that the market is in an uptrend. In this strategy, we are going to pair the Force Index Indicator with the Moving Average to generate reliable trading signals. We are going to use the 9-period MA and the default 13-period average for the Force Index.
The strategy is simple. When the Force Index Indicator crosses the zero line from below, see if the moving average is going below the price. If yes, that is a buy signal for us.
As you can see in the below chart, when the Force Index crosses the zero line, the moving average also goes below the price at the same time. This can be considered as a strong buy signal. It is recommended to exit your trades at the resistance area or the recent high. You can also use the MA to exit your trade. If you see the MA going above the price, that is an indication of a trend reversal. If you had taken this trade according to this strategy, you would have generated a profit of 40 pips.
When the Force Index Indicator crosses the zero line from above, see if the moving average is going above the price. If yes, that is a sell signal for us.
In the below chart we can see that the market is in a downtrend. The Force Index crosses the zero line from above, and the MA goes above the price. Hence it is a strong buy signal. We suggest to book your profits at the strong support/resistance area or use the recent low. But if the trend is super strong, you can go for deeper targets also.
The main drawback of this indicator is that it generates the entries very late. For instance, after the breakout, price moves significantly beyond the breakout. But this indicator takes more time to indicate the breakout itself. For intraday trading, traders typically use the shorter term average. The problem with the shorter term average is that it often creates whipsaws. Hence, we suggest you use the 10, 13, and 20 periods for intraday. But if you are a long term investor, you can go for 50,100,150 averages. Only fewer signals are generated, but the signals will be extremely accurate.
FII is a lagging indicator, and it uses price and volume data to calculate the average. Most of the traders use100-day average as their purpose of using this indicator is to measure the long term market trend. If the 100-day force index is positive, it means the buyers are stronger, and if the 100-day average is negative, it means the sellers are stronger in the market. For intraday trading, it is highly recommended to use this indicator in conjunction with other reliable indicators. By now, we believe you have got the gist of FII. Use this indicator in your daily trading activities and let us know if it has worked for you in the comments below.