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

introduction

Elder’s Force Index(EFI) aims to quantify market forces and reveal the relationship between buyers and sellers through changes in prices and turnover. This indicator represents the strength of the market in numerical form by calculating the product of price change and volume change.

The history of Elder’s Force Index

Elder’s Force Index(EFI) is a technical analysis index developed by Alexander Elder. Alexander Elder is a Russian-American trader, investor and writer, who is famous for his research in technical analysis and trading psychology.

Alexander Elder entered the financial market in the late 1970s and early 1980s, and achieved success in many fields. His research focuses on combining technical analysis with psychology to understand market dynamics in a more comprehensive and comprehensive way.

Elder’s Force Index, as one of the technical indicators he created, aims to emphasize the relationship between price and volume, and help traders better identify the changes in market trends and forces. The design of EFI enables it to provide quantitative measurement of market power, thus providing traders with the basis for decision-making.

Alexander Elder is not only a successful trader, but also the author of many bestsellers, including The New Trading for a Living. His works are welcomed by many traders, and he is one of the promoters of technical analysis and trading psychology.

Elder’s Force Index calculation method:

EFI=(Close−PrevClose)×Volume

Remarks:

• Close: the closing price of the current period.
• PrevClose: the closing price of the previous period.
• Volume: the volume of the current period.

How to interpret EFI value;

1. Positive EFI:

• Indicates that the current price is rising.
• At the same time, it is accompanied by a large turnover.
• May indicate a strong bull market, the buyer’s strength is stronger.

2. Negative EFI:

• Indicates that the current price is falling.
• Accompanied by a large volume of transactions.
• May indicate a strong bear market, the seller’s strength is stronger.

3. Absolute value of EFI:

The greater the absolute value, the more significant the change of price and volume, and the stronger the market power.

Use case:

Scenario 1-Strong upward trend:

The closing price of a currency is higher than that of the previous period.

The transaction volume is relatively large.

EFI is a positive number with a large value.

Interpretation: It shows that the current market upward trend is relatively strong, which may be a signal of continuous upward trend.

Scenario 2-Signs of Trend Reversion:

The closing price of a currency is higher than that of the previous period.

The transaction volume is relatively small.

EFI is a positive number, but the value is relatively small.

Interpretation: Although the price has risen, the relatively weak trading volume may indicate that the market power has weakened, which may be a sign of a reversal of the trend.

Precautions:

• Trend confirmation: EFI is usually used to confirm trends, and it is used in combination with other technical indicators, not alone.
• Multi-period analysis: observing EFI in different time frames is helpful to obtain more comprehensive market dynamics.

Elder’s Force Index provides traders with a tool to quantify market power, but EFI is usually used as an auxiliary tool for other technical indicators and analysis methods, rather than alone, and its interpretation needs to be combined with the overall market situation and other technical indicators to make more accurate trading decisions.