Elder’s Force Index (EFI)
🔍 What is Elder’s Force Index?
Elder’s Force Index (EFI) is a momentum oscillator created by Dr. Alexander Elder. It combines price movement and volume to measure the strength behind a market move — essentially quantifying the "force" behind price action. Unlike many oscillators, EFI factors in both direction and intensity, making it valuable for confirming trends and identifying potential reversals.
This indicator is especially useful in volatile markets where price movements can be deceptive. EFI helps determine whether bulls or bears truly have control.
⚙️ How Does It Work?
The Force Index is calculated with the formula:
EFI = (Current Close - Previous Close) × Volume
A positive EFI value suggests buying pressure (bullish force).
A negative EFI value suggests selling pressure (bearish force).
The larger the value (positive or negative), the stronger the pressure.
There are typically two versions:
Raw EFI: Shows each day’s force.
Smoothed EFI: Uses an exponential moving average (typically 13-period EMA) to filter noise.
📖 How to Read Elder’s Force Index
EFI oscillates around the zero line:
Above Zero: Bulls dominate; buying pressure exists.
Below Zero: Bears dominate; selling pressure is in play.
Crossing Zero: Potential trend change or consolidation.
Key signals:
EFI rising = Strengthening trend or momentum (bullish or bearish depending on direction).
EFI divergence = Momentum slowing compared to price, signaling a possible reversal.
Sharp spikes = Exhaustion moves; be cautious.
🔧 Best Settings for EFI
13-period EMA (default) for standard trend-following and swing trades.
2- or 3-period EMA for short-term signals or scalping.
21+ period EMA to smooth out longer trends and reduce noise.
Each trader should test settings based on asset volatility and strategy.
📈 How to Use EFI in a Strategy
Here are some common and effective ways to use Elder’s Force Index:
✅ Trend Confirmation
If EFI is above zero and rising while price is making higher highs — bulls have true control.
✅ Reversal Signals
Look for divergence between price and EFI. Example: Price hits a new high, but EFI forms a lower high → weakening bullish momentum → potential reversal.
✅ Pullback Entries
In an uptrend, wait for EFI to dip below zero (temporary selling pressure), then return above zero to time a pullback entry.
✅ Combine with Indicators
Use with Moving Averages to define trend direction.
Combine with RSI or MACD to confirm entries or divergences.
⚠️ Common Mistakes to Avoid
❌ Ignoring Volume Context: EFI depends heavily on volume. In thinly traded assets, the signal loses reliability.
❌ Overreacting to Noise: Use smoothed EFI to avoid false signals from raw data.
❌ Using in Isolation: Best results come when EFI is paired with trend tools or support/resistance.
🧠 Final Thoughts
Elder’s Force Index gives traders a unique view of the market by blending momentum and volume into a single signal. Whether you’re a swing trader looking for trend strength or a scalper seeking short bursts of force, EFI offers insight that many indicators miss.
Like any tool, it’s most powerful when used in conjunction with other indicators and a solid understanding of market structure.
Last updated