Force Index helps identify turning points in any market by

tying together
three essential pieces of informationthe direction of price
movement, its
extent, and volume. Price represents the consensus of value
among market
participants. Volume reflects their level of commitment,
financial as well as
emotional. Price reflects what people think, and volume what
they feel.
Force Index links mass opinion with mass emotion by asking
three ques-tions: Is the price going up or down? How big is
the change? How much
volume did it take to move the price?
It is very useful to measure the force of a move because
strong moves
are more likely to continue than weak ones. Divergences
between peaks
and bottoms of prices and Force Index help nail important
turning points.
Spikes of Force Index identify zones of mass hysteria, where
trends
become exhausted. Here is the Force Index formula:
Force Index =(Close todayCloseyesterday)Volume today

If the market closes higher today than yesterday, Force

Index is positive,

and if it closes lower, Force Index is negative. The greater

the spread
between todays and yesterdays closes, the greater the
force. The higher
the volume, the more forceful the move.
Force Index is greater when the market moves far on high
volume and
lesser when the market moves a short distance on thin
volume. When the
market closes unchanged, Force Index equals zero.

When the trend of our stock or future is up and the two-day

EMA of
Force Index declines below zero, it gives a buy signal. When
the trend is
down and the two-day EMA of Force Index rallies above zero,
it gives a
sell signal.

When the two-day EMA of Force Index spikes up or down,

exceeding its
normal peaks or lows by several times, it identifies an
exhaustion move
a signal to take profits on existing positions.

A divergence between an EMA of Force Index and price

shows that the

trend is ready to reverse