The force index, a term and formula developed by psychologist and trader Alexander Elder, is a technical indicator that measures the amount of power used to move the price of an asset.
The Force Index allows to identify the reinforcement of different time scale trends: The indicator should be made more sensitive by decreasing its period for short trends. The indicator should be smoothed by increasing its period for longer trends. The Force Index may strongly imply a trend change: Break-down of an uptrend when the indicator’s value is changing from positive to negative and price and indicator show divergence.
Break-down of a downtrend when the indicator’s value is changing from negative to positive and price and indicator show convergence. Together with a trend-following indicator the Force Index can help identify trend corrections: An uptrend correction when the indicator bounces off the low. A downtrend correction when the indicator slides from a pike.
Forex Technical Analysis
The name of oscillator derives from the Latin word oscillo which means “I swing”. In technical analysis oscillator is the mathematical expression of the speed of price movements over time. By their form oscillators are advanced indicators.
Basic concepts of using oscillators are the overbought and oversold conditions of market. The market is considered overbought when the price is near its upper limit, and its further improvement is unlikely. Oversold zone is characterized by such a low price, that at the given moment its further downturn is unlikely. Although the analysis and use of oscillators best of all are represented at the constant state of market, the time of trend reversal can also be determined by their help.
To identify a trend reversal it’s necessary to understand the concepts of convergence and divergence of the curve oscillator with the direction of price movements.
What is Support and Resistance
In technical analysis the lows and highs of the trend are identified by their appropriate names, which are support and resistance levels respectively. These levels are the areas where most traders are willing either to buy or sell an asset.
Support level indicates the area where the buying interest is high and exceeds the selling pressure. At this level the price is considered very attractive for taking long positions and most traders choose to buy an asset when the price approaches a support level. Resistance level represents the area where the selling interest is high and exceeds the buying pressure. Traders are willing to take short positions and sell an asset when the price approaches this area.
How to Draw
Support and resistance levels form an essential part of technical analysis used to identify the trend and make trading decisions. They test, as well as confirm trends and should be applied by every trader who uses technical analysis.
Support level is marked by a line which connects previous lows. Depending on the primary trend (prevailing direction of price movements) it can be marked either by a sloping line or a horizontal line. In an upward trend the trendline connecting the lows is considered a support with positive slope.
In a sideways trend the lower trendline is considered a horizontal support. Resistance level is marked by a line connecting previous highs. Depending on the primary trend a resistance level can also be marked either by a sloping line or a horizontal line. In a downward trend the trendline connecting the highs is considered a resistance with negative slope. In a sideways trend the upper trendline is considered a horizontal resistance.
Trading Strategy
The rationale of support level is that as the price gets closer to this area, buyers see a better deal and are willing to buy, while sellers see a worse deal and are less likely to sell. However, support cannot always hold prices. And when prices break below the support level this indicates that sellers may have a good opportunity to sell the asset.
On the other hand, the main premise behind resistance is that as the price gets closer to the resistance level sellers get more willing to sell an asset, while buyers will be less inclined to buy. A break above the resistance level indicates an increased willingness to buy.
A reversal between support and resistance levels can be either a positive or a negative change against the prevailing trend. It is crucial for analysts and market participants, because depending on the signals of these patterns they adopt a trading strategy on the same security.