✔️ Information reviewed and updated in December 2023 by Eduardo López
There are many types of indicators, each of them with different purposes such as the strength index. Some are used to predict the direction in which the price is going, others identify great opportunities to buy and sell or simply know how the market is going.
Most successful cryptocurrency traders rely more on technical and financial knowledge than luck. If you want to start trading, you need to know in detail the indicators that exist in the cryptocurrency market.
✨➡Definition of the force index
The Force Index (FI) is also an indicator created by Alexander Elder.
It measures the strength of buyers (Bulls) and sellers (Bears) in a trending market, and is based on price, direction, and volume of trades. For Elder, these three elements were of utmost importance to the price movement.
This indicator can confirm a trend, identify corrections that are convenient to operate and even forecast reversals.
✨➡What is the strength index for?
The strength index is one of the most used technical indicators in the analysis of financial markets. In addition, this indicator combines both price and volume in one value that makes it easy to read and interpret.
The intensity of the force will depend on the volume of trading. When the indicator reaches a new high, the recent uptrend has a high chance of being able to continue. On the other hand, when the indicator reaches a new low, the downtrend has a high chance of continuing. This is because sellers are stronger.
✨➡How is the strength index obtained?
In order to obtain the strength index, it is first calculated by subtracting the close of the previous period from the close of the current period and multiplying the result by the volume of the current period.
If the close of the current period is higher than the previous period, then the value of the indicator must be positive.
On the other hand, if the close of the current period is less than the close of the previous period, then the indicator must be negative. The strength of the indicator is determined by the change in price or volume.
Typically, this index is displayed on charts as a histogram with a line in the center that is at zero. A bull market should produce a positive force index, and a bear market a negative force index. There may also be a market without a defined trend, which produces an index located at or near the center line.
✨➡Reasons to use it
A positive strength index indicates a dominance of the buyers, and on the contrary a negative one shows the superiority of the sellers.
So it is worth seeing what are the results that this indicator can show us. Although, it shows better results when applied to volatile markets.