Elder's Force Index (EFI)
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- 1 DEFINITION
- 2 HISTORY
- 3 CALCULATION
- 4 THE BASICS
- 5 WHAT TO LOOK FOR
- 6 SUMMARY
- 7 HOW TO USE IN TRADINGVIEW
Elder's Force Index (EFI) measures the power behind a price movement using price and volume. The indicator can also be used to identify potential reversals and price corrections. The EFI is an oscillator that fluctuates between positive and negative values, above and below a Zero Line. Alexander Elder, the indicator's creator, believed that there are three components to a security's price movement. Those three components are; direction, extent and volume. All three of these components are combined by the EFI to generate the oscillator.
Elder's Force Index (EFI) was created by the famed professional trader and psychiatrist Alexander Elder. The indicator was introduced in his book Trading For a Living: Psychology, Trading Tactics, Money Management which was published in 1993.
(CurrentPeriodClose - (PreviousPeriod Close) X Volume = EFI 13 Period Exponential Moving Average of EFI = EFI (13)
The Elder Force Index (EFI) combines the previously mentioned three components. Here is a further breakdown.
1. Direction - A positive change in direction from one period to the next indicates that buys were stronger than sellers. A negative change in direction means that sellers were stronger than buyers.
3. Volume - High levels of volume shows a strong commitment underlying the price movement.
Essentially, EFI's calculation takes these three components and produces an easily readable visual of the information.
WHAT TO LOOK FOR
EFI can be used to identify market trend. Different periods of EFI can be used to identify shorter or longer-term trends. Typically, a 13 period EFI can be used for a shorter-term trend. Something like a 100 Period EFI can be used for an intermediate or longer-term trend. Longer period EFI produces a smoother signal than shorter-term EFI.
Bullish EFI Divergence occurs when price moves lower while the EFI moves higher.
Bearish EFI Divergence occurs when price moves higher while EFI moves lower.
EFI Divergences can be further reinforced by a Zero Line crossover. For example, when a Bullish Divergence is forming, EFI crossing the Zero Line into positive territory could further reinforce a signal of an impending reversal.
During an uptrend, EFI can present buying opportunities in the form of price corrections. EFI can temporarily drop into negative territory when price dips before continuing the uptrend.
During a downtrend, EFI can present selling opportunities in the form of price corrections. EFI can temporarily rise into positive territory when price bounces before continuing the downtrend.
The Elder's Force Index indicator (EFI) combines both price action as well as volume to quantify a valuable metric. It is fairly versatile and can be used for a number of things. most notably trend confirmations and trading signals due to divergences and price corrections. That being said, as with most indicators it is best not to use the EFI as a stand-alone signal generator but in conjunction with additional indicators and technical analysis.
HOW TO USE IN TRADINGVIEW
- Navigate to https://www.tradingview.com/
- On the landing page, enter a symbol and click "Launch Chart"
- Within the Toolbar along the top of the chart select "Indicators" and choose the one you would like to add to your chart.
- To make changes to your Indicator you will need to access the Formatting Window.
- You can access the Formatting Window by either clicking on the Blue "Format" button in the Chart Header next to the Indicator name, or by right clicking on the Indicator in the chart itself and selecting "Format".
The time period to be used in calculating the EFI. 13 is the default.
Elder's Force Index
Can toggle the visibility of the EFI Line as well as the visibility of a price line showing the actual current value of the EFI Line. Can also select the EFI Line's color, line thickness and visual type (Line is the default).
Can toggle the visibility of the Zero Line. Can also select the Zero Line's value, color, line thickness and visual type (Dashes are the default).
Sets the number of decimal places to be left on the indicator's value before rounding up. The higher this number, the more decimal points will be on the indicator's value.
Last Value on Price Scale
Toggles the visibility of the Indicator Value on the vertical axis.
Arguments in Header
Toggles the visibility of the indicator's name and settings in the upper left hand corner of the chart.
Scales the indicator to either the Right or to the Left.