Elder's force index on M5

[Fairman]

Elder's force index on M5

Alexander Elder's force index combines price change and volume into a single number. For each bar, take the close minus the previous close and multiply by the volume. Then smooth it with an exponential moving average, usually 2 periods for short term use or 13 for a longer view.

In forex we only have tick volume, which counts price changes rather than traded amounts. That's a limitation, but tick volume does track activity reasonably well during liquid sessions. So the force index still tells you whether a price move happened on busy or quiet conditions.

On M5, a 13 period force index above zero means recent bars have closed higher on average with activity behind them. Strong positive readings mean big up closes on high tick volume. A move up on weak force index readings means price is rising without much activity, which I'm wary of.

The way Elder suggested using it, roughly, is to buy pullbacks when the short force index dips below zero during an uptrend, and sell rallies when it pops above zero during a downtrend. On M5 the 2 period version reacts within a bar or two, so it's fast enough for scalp entries.

The 13 period line is useful for spotting divergences. Price making a new high while the force index makes a lower peak suggests the push is running out of fuel.

[FXS HongKong Scalper]

Force index on tick volume works reasonably in liquid sessions, as you say. One thing I do is compare the force index level with its typical value for the same hour. A reading that is high in the quiet Asian afternoon may be normal during the London open. Normalising the value, for example dividing by the average absolute force index over the last few days at that hour, makes the readings comparable across sessions. Then a spike really means unusual activity rather than just a busy time of day.

[Fairman]

Tick volume differs between brokers, since it depends on how many price updates each broker sends. The force index values on one broker can be several times larger than on another. That means you can't use fixed thresholds from someone else's setup. Look at the typical range on your own feed and set your levels relative to that. It's the same issue with any tick volume indicator, really, but it shows up most clearly in the force index because volume multiplies the price change directly. Recheck the scale whenever you change broker, since the numbers can shift completely.

[Fairman]

The force index scale changes with price level too. A pair priced around 150, like USDJPY, gives larger price differences per bar than a pair around 1, so the readings are on a completely different scale. Comparing force index across pairs doesn't really work. It's a tool for reading one chart at a time. Normalising it by dividing by the average range or by the price makes comparisons a little more reasonable. Most people don't bother, since they use it on one chart at a time anyway. Comparing it across timeframes on the same pair has a similar issue, because larger bars produce larger price changes and larger tick counts.

[Fairman]

During the Asian session, tick volume is low and the force index stays close to zero most of the time. Spikes stand out more but also happen on less activity. I find it more useful during London and the New York overlap, when there's enough tick volume for the readings to mean something about who is driving the market. London open and the New York overlap usually have the busiest tick volume and give the clearest force index readings. Outside those times I give the indicator very little weight. Even then, the readings during news spikes are distorted, so I treat the first few bars after a release with caution.

[Fairman]

The 2 period version reacts extremely quickly. On M5 it can flip sign every bar during a range. That's why Elder used it for entry timing inside a trend that was identified with something else, such as a longer moving average or the 13 period force index. Trading every flip of the short version on its own would just mean overtrading in the chop. In practice that means the 13 period line or a moving average decides the direction, and the 2 period line is only used to pick moments to enter in that direction. Taking signals the other way is where it falls apart.