How to Use the Force Index in Day Trading - dummies

How to Use the Force Index in Day Trading

The volume of stock (or other securities) traded on the market combined with the force index can provide a day trader with a sense of how long a trend will last.

Volume tells you how much stock or commodity trading is taking place in the market. Volume tells you whether enough support exists to maintain price trends or whether price trends are likely to change soon.

The force index gives you a sense of the strength of a trend. It starts with information from prices, namely that, if the closing price today is higher than the closing price yesterday, that’s positive for the security.

Conversely, if today’s closing price is lower than yesterday’s, then the force is generally negative. Then that price information is combined with volume information. The more volume that goes with that price change, the stronger that positive or negative force.

Although many quotation systems calculate force for you, you can do it yourself, too. For each trading day, run this calculation:

Force index = volume × (today’s moving average – yesterday’s moving average)

In other words, the force index simply scales the moving average momentum oscillator for the amount of volume that accompanies that price change. That way, the trader has a sense of just how overbought or oversold the security is on any particular day.