LEARN ELDER’S FORCE INDEX IN 3 MINUTES ——BLOCKCHAIN 101

What Is Elder’s Force Index?

Elder’s Force Index (EFI) was proposed in 1990 by Dr. Alexander Elder, a renowned trading psychologist and technical analysis expert. The core idea behind EFI is very intuitive: market price rises and falls are essentially an arm-wrestling match between bulls and bears, while trading volume represents the magnitude of that force.

In other words, price is just the surface; what truly drives prices up and down is the power struggle between bulls and bears in the market. Dr. Elder sought to quantify the change in this “force” with a simple mathematical formula, thereby helping traders judge trend strength and identify potential buy–sell signals.

The calculation of EFI mainly relies on two key factors:

1. Price change:
   This refers to the difference between today’s closing price and yesterday’s closing price. It represents the market’s immediate momentum: a price rise indicates that bullish force dominates; a price drop indicates that bearish force dominates.
   For example: if Bitcoin’s closing price was $100,000 yesterday and rises to $101,000 today, then the price change is +$1,000—meaning bulls are pushing the price upward.

2. Trading volume
   This represents how many market participants have joined the “arm-wrestling match,” i.e., the scale of the force. The greater the volume, the more intense the bull–bear competition, and the more credible the force behind the price move.

For instance, if price rises by $1,000 but the volume is only 10 BTC, bullish force is limited; if the volume reaches 1,000 BTC, then the upward force is very strong.

The EFI formula and interpretation

Combining price change and volume, Dr. Elder proposed the following formula: EFI = (today’s close − yesterday’s close) × today’s volume

Formula interpretation:
· When price rises and volume expands, EFI is positive and increasing → bulls are strong, the trend may continue.
· When price falls and volume expands, EFI is negative and decreasing further → bears dominate, the market may decline.
· When price rises but volume contracts, EFI may remain positive but shrink → upward momentum is insufficient, a pullback may occur.
· When price falls but volume contracts, EFI is negative but shrinking → bearish force is weakening, a rebound may occur.

Through this formula, EFI combines the market’s “price momentum” and “trading activity” into a single indicator—both intuitive and quantitative—allowing traders to see the real force behind price, not just price changes themselves.

Why Is EFI Especially Suitable for the Crypto Market?

Many people ask: since the stock market already has RSI and MACD, why study EFI? The reason is simple: the crypto market is inherently highly volatile, and volume changes are more dramatic than in traditional markets. EFI combines price + volume and is particularly sensitive during bull–bear transitions.

For example:

· If Bitcoin rises from 100,000 to 102,000 and volume expands with it, EFI will surge sharply → a truly strong uptrend.
· But if price rises while volume shrinks, EFI may be flat or even weaken → this could be a false breakout.

This is crucial in crypto, because big players often push prices up to create a “fake bull market,” and EFI helps you see through it.

Practical Case Breakdown

Suppose ETH shows the following movement in a given week (all prices are hypothetical for ease of calculation and illustration):
· Day1: close 2,000 → 2,050, volume 10,000 → EFI = (50) × 10,000 = +500,000 (bulls strong)
· Day2: close 2,050 → 2,080, volume 6,000 → EFI = (30) × 6,000 = +180,000 (price up but momentum weakening)
· Day3: close 2,080 → 2,060, volume 8,000 → EFI = (−20) × 8,000 = −160,000 (bears exerting force)

From the data above, we can see:

· Day1 is a strong upward move;
· Day2 sees price continue to rise, but EFI clearly weakens → a warning signal;
· Day3 indeed pulls back, with EFI turning negative.

This is the value of EFI: it doesn’t just look at price, it reveals the real force behind it.

How to Use It with Other Indicators?

· EFI + EMA: smooth EFI with an EMA to avoid noise from short-term fluctuations. A common setup: 14-day EMA + EFI.
· EFI + MACD: use MACD to judge the broader trend and EFI to judge short-term force. If MACD is bullish but EFI turns negative repeatedly → it may be a fake bull; be cautious.
· EFI + support/resistance: at key levels, combine EFI to validate whether a breakout is effective.

Common Pitfalls

1. Looking only at EFI’s absolute value: EFI is not “the bigger the better”; you must read it in the context of the trend.

2. Ignoring timeframes: the daily EFI may show strength, but on the weekly or monthly level the trend may be entirely different.

3. Treating it as a magic wand: EFI is a tool, not an oracle. It can help improve your win rate, not guarantee profits.

One-sentence summary: Elder’s Force Index = price change × trading volume, an indicator that measures bull–bear strength.

· It can reveal the true intensity of a trend;
· It can help identify false breakouts and divergences;
· It is especially useful in the crypto market.

Therefore, whether you’re a beginner or a veteran, it’s worth adding EFI to your toolkit. You can get started with it in 3 minutes, and the more you study it, the more you’ll find its value could serve you for a lifetime.