In modern access, traders have a considerable number of tools that allow them to significantly raise the level of their trading activity at the exit. Among all technical analysis tools, the ForceIndex (FI) indicator takes pride in place - the force index, which acts as an oscillator, which perfectly combines trading volumes and price values (combining them in one parameter). Using this tool, the player can literally «feel» the Sioux market with maximum precision and clarity, which will undoubtedly be useful for further trade records and success.
From the technical point of view, the main task of the indicator (for which the use of the force index is necessary), in this case, is a measurement - measuring the strength of «bulls» during an increase, as well as determining the level of strength of «bears» during a market decline. I would like to emphasize that the ForceIndex indicator readings mainly depend on three significant factors - changes in the exchange rate, price movement parameter, and trading volume.
The oscillator is also able to smooth out such well-known lines as moving averages: this allows you to recognize significant adjustments in the power distribution of exchange traders (both bulls and bears).
So. 1. Description of the indicator Considering the strength index, you should pay attention to the following points: 1. In a situation where the current closing quote is the maximum and is greater than yesterday's indicator, we can safely speak of the presence of positive force. In other words, the bulls distinguished themselves on this day - those traders who play for the purchase won. 2. If the above indicator acts as a low (minimum), then we can conclude about the dominance of sellers - bears, which tend to sell. 3. The present volume indicates the degree of interest (involvement) of the exchange participants, and thus, it directly affects the potential for the continuation of the trend. 4. The larger and more significant the discrepancy (price difference) and the more significant the volume, the greater the level of strength.
Also keep in mind that the basic variant - the «raw» oscillator chart is a histogram, the bars of which are located about the zero lines. If the exchange closed higher than on the previous day, then the indicator of the strength index can be regarded as positive, but if the situation is the opposite, then we are talking about a negative value.
Also, consider the following points: - the histogram presented for consideration is uneven, which is why one cannot do without the use of an exponential MA (moving average). Its main role is to smooth out and eliminate irregularities; - the value of the period of the moving average, if the index is short-term, will be determined by the number 2; - if the strength index is medium-term, then the MA period is 13. 2. Consider the characteristic features of use So, the most remarkable moments of the indicator application are: 1) if the force index fixes a negative moving average, which has a period of two, then, as a rule, this situation can be regarded as a notification that it is time to buy; 2) if the situation is opposite (than the one above), then the most profitable solution for the trader will be to make sales; 3) a deal must be opened exclusively according to the trend: entering against the trend will be unreasonable on the part of the player; 4) in a situation where the MA of the Index, whose period is 13, passes the zero limit - the level from top to bottom, then this tells us about the weakness of buyers; 5) if there is a situation in which MA goes into the negative zone, then we can declare the dominance of the sellers; 6) the power oscillator shows us the key zones - pivot points. But this is relevant provided that there is a divergence (divergence) on the moving average, whose period is 13; 7) if the Index gives us an indication of a flat (sideways movement of the market), then we can conclude that there is no change in the exchange rate over the analyzed interval - both by an increase in the trading volume and by its decrease.
In other words, the likelihood that the trend will reverse is very significant.
Also, another sign tells us about the imminent reversal - the lateral movement of the indicator: this can be judged if the trading volumes are large, and the rate fluctuations, on the contrary, are barely perceptible. Then, we need to determine the signals themselves, analyzing them based on a period - either a two-day or thirteen-day interval. From the point of view of experts, the two-day moving average is more accurate, but trading on it is associated with several nuances. MA with a period of 13 makes it possible to determine the probability of maintaining the medium-term trend in general. Of course, if you adhere to the necessary conditions. 3. Interesting points related to this indicator For the Strength Index to bring efficiency in the output, the following factors should be considered: 1) the biggest drawback of FI is the use of the tick volume in trading operations (to calculate it). Any deal will be equated (both for several monetary units and for a thousand) to one tick on the chart; 2) to reduce the possibility of making mistakes and mistakes when working with the force index, it is better to use other means of technical analysis; 3) most traders are inclined to believe that the strength index is reasonable to use in long-term trading tactics; 4) ForceIndex can deservedly be called a universal technical analysis tool, which allows players to trade as efficiently and efficiently as possible on almost any pair of currencies. Therefore, we can safely say that the use of the Force Index indicator is expedient and reasonable for the player because the instrument's methodology allows determining the strength of the market - the strength of bears and bulls, calculating it with sufficiently high accuracy.
Using it, you can get to know the market better, and therefore increase the level of your professionalism.