Elder's Force Index \ EFI Indicator is a technical analysis index developed by Alexander Elder. For the first time, the author talks about him in his book "How to Play and Win on the Stock Exchange" Elder, if I may say so, a fan of speaking names for his creations: "Power of the Bulls", "Power of Bears" are excellent examples of this. Actually, the Index of Strength is no exception. It implies a confrontation between sellers and buyers, shows the relationship between the strengths of bulls and bears at a given time on the price chart.
The Elder's Force Index (EFI) is displayed in a separate window. The indicator is presented in the form of a histogram. The indicator value is determined by the ratio of the candlestick closing price to the previous one and the volume. That is, it can be argued that the main trading metrics are used for the calculation: prices and volume.
The resulting index is quite suitable for trading in this form, but according to the author, there will be too many false signals. Therefore, Elder proposes to smooth the indicator values using a moving average with a period of 2 or 13.
Please note that the Elder's Force Index (EFI) is inherently an oscillator, but it can also be used as a trend indicator. In the classical form (according to Elder), 2 variants of smoothing the resulting value are proposed. So, if you use MA (2), then the indicator will work as an oscillator, with all the ensuing moments, that is, we trade divergences, the transition of the histogram above / below zero, etc. But if MA (13) is set, then the Force Index will show the direction of the current trend and the moments of its change, but not signals to enter a trade.
