Elder Force Index (EFI)

What Is The Elder Force Index (EFI)?

The Elder Force Index is a technical analysis tool that is used to identify the strength of price movements based on changes in volume. It consists of a histogram that reflects the force of bulls and bears in the market.

The tool is based on the idea that price movements that are accompanied by high volume are more significant than those that are accompanied by low volume. The EFI can be used to identify potential trend reversals and to confirm trends that are already in place.

How Do You Read The EFI?

The Elder Force Index provides traders with information about the strength of price movements based on changes in volume. The tool can be used to identify potential trend reversals and to confirm trends that are already in place.

How Does The EFI Work?

The EFI works by measuring the force of bulls and bears in the market based on changes in volume.

When the Elder Force Index is positive, it indicates that bulls are in control of the market, and when it is negative, it indicates that bears are in control.

How Is The Elder Force Index Calculated?

The calculation for the Elder Force Index involves subtracting the previous day’s closing price from the current day’s closing price and multiplying the result by the current day’s volume.

The resulting value is added to or subtracted from the previous day’s EFI value, depending on whether the current day’s price movement was bullish or bearish.

The Encyclopedia Of Technical Market Indicators, Second Edition

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How Do You Use The Elder Force Index?

Trend Identification: Traders can use the EFI to identify potential trend reversals and to confirm trends that are already in place. When the Elder Force Index is positive and rising, it may indicate an uptrend. When it is negative and falling, it may indicate a downtrend.

Entry and Exit Points: Traders can use the EFI to identify potential entry and exit points. When the Elder Force Index crosses above the zero line, it may indicate a potential buy signal. When it crosses below the zero line, it may indicate a potential sell signal.

Divergence: Traders can also use the EFI to identify potential divergence between the price and the indicator. For example, if the price is making higher highs while the Elder Force Index is making lower highs, it may indicate a trend reversal.

Additional Trading & Risk Management Tips

Use the Elder Force Index in conjunction with other technical indicators and chart patterns to improve the accuracy of trading signals.

Adjust the period of the EFI to suit your specific trading style and the market you are analyzing. Use proper risk management techniques to protect your investments. Always consider other factors in addition to the EFI when making trading decisions.

Be aware that the Elder Force Index is a lagging indicator. This means it reflects past price movements and may not accurately predict future price movements. Therefore, use it in conjunction with other technical analysis tools to make more informed trading decisions.

Monitor the position of the EFI relative to the zero line for potential buy and sell signals. Adjust your trading strategy accordingly.

Consider using the tool in conjunction with support and resistance levels or trendlines to confirm potential entry and exit points or to identify areas of confluence.

Finally, practice using the EFI on historical data and demo trading accounts to evaluate its effectiveness for your specific trading style and market conditions before incorporating it into your live trading strategy. Practice using the Elder Force Index using a TradingView account to backtest performance.