The Force index is an index developed by Dr Alexander Elder. It measures the strength of bulls and bears in the market. The formula uses both close prices and volume data. It is calculated by subtracting the yesterday close price from today (current bar) close price, then multiplying the result by today volume. The values of this index could be positive or negative depending on whether today close price is higher or lower than yesterday close price.
The raw values of the Force index should be plotted as a histogram. But because the raw data is erratic, the index is better smoothed by an exponential moving average. The length of the moving average determines whether you want to measure bulls and bears strength in the short, intermediate or long term. Generally a two-day EMA is used for the short term while a 13-day exponential moving average is used for the intermediate term.
The Force index tells us that the bulls are in control if the signal is above the zero line, the bears are in control if the signal is below the zero line. Near the zero level, neither the bulls nor the bears are in control.
A divergence between the EMA and the stock prices could also be used as signal entries, these divergences could indicate that the security trend is about to change its direction.
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