Definition

The Elder Force Index (EFI) is an indicator that calculates the force behind a price movement by multiplying the day's trading volume by the difference in the closing price and the previous day's closing price. This oscillator doesn't have upper or lower limits and serves as a way to assess the strength of a price movement in relation to its trading volume.

Suggested Trading Use

When the EFI is positive and rising, it typically means that volume is supporting an upward price movement. This suggests that it may be a good time to consider entering a long position or holding onto existing long positions.

On the other hand, if the EFI is negative and falling, volume is likely supporting a downward price movement. This could indicate that entering a short position or holding onto existing short positions might be more appropriate.

The EFI can also help you with risk management. For example, a declining EFI during an upward price move may signal decreasing buying enthusiasm, which could be a warning that the trend is weakening. Conversely, an increasing EFI during a downward price move could indicate growing selling pressure, suggesting that the downtrend is strong.

By paying attention to the EFI, you can get a better understanding of how much conviction traders have in the current price direction, which can help you decide whether to enter or exit a trade.