Alexander Elder created the force indicator to help both new traders and experience professionals improve their success rate. The tool works by measuring the price movement and direction. In fact, it is actually an oscillator. It works on the premise that the stronger the momentum in the market the better you will be able to trade; this means that you will need to follow and understand the latest market trends. It is built around three principles; that the momentum of price movement for any type of asset can be assessed and realized by tracking the direction it is moving in, the amount of it being trading and how long this trading has been going on for.
It will not tell you if an asset is moving with a trend or about to reverse, but it will guide you as to the current strength of any given asset.
The first part of the equation involves taking the final price of an asset on the day before you are trading. You can then take this price away from the current trading price. You will then be able to tell whether the price is climbing or falling. You can also see if it has risen or fallen by a large or small amount.
The first part of the indicator requires you to take the difference in price and times it by the volume. This will give you the F1 line. You can then create a second line on your chart from the moving averages of the asset for a given time scale. For instance, you could break the day into thirteen elements and create a moving average for each of the thirteen sections.
The greater the movement in these averages the more momentum your asset has and the more likely it is that it will continue to trade in the same way. Small adjustments in the line will suggest a weak momentum the price may be about to change. As this tool cannot pick changing points you will either need to abstain from trading or use a second tool.
The tool can be extremely beneficial; once you have used it a few times to get used to the information provided. As with any tool, it will not get it right every time; it can even spot a fake price movement and believe it is a genuine one. However, it can provide a strong back-up to any indicator software you are using and will provide an excellent way to check trends and even ensure you have picked the right trade when dealing with a variety of different time frames.
With a little practice this can be an exceptionally useful tool to both beginner traders and experienced ones. The chart has also been known to highlight when a particular asset is volatile; providing you with an opportunity to assess the asset and possibly make an additional trade successfully. It is a worthwhile additional to any traders list of tools; at a glance it can tell you whether an asset is doing anything or not.