The Elders Force Index (EFI) is an oscillator that moves between positive and negative values. It’s used to show the correlation between price and volume for different price movements. The EFI takes price direction, extent, and volume into account and graphs it into an easily digestible oscillator.
The EFI eliminates the need to visually check the relationship between price and volume, as well as direction, as all of these factors are taken into account with the oscillator. High readings on the EFI are to be expected with high prices and versa.
Understanding the Elder Force Index (EFI)
As the EFI takes direction, extent, and volume into consideration, it’s, therefore, a powerful indicator that has many different use cases.
The first use of the EFI is for identifying price trends. If the indicator moves along with price over weeks or months then this will give credit to a short or medium-term trend.
The second way that the EFI can be used is by identifying divergences that come in either bullish or bearish varieties. A bullish divergence will occur when prices make a lower low but the EFI makes a higher high. A bearish divergence occurs when price makes a higher high but the EFI makes a lower low.
Other uses of the EFI is by looking at zero-line crossovers. Although not robust signals in themselves, a signal line cross-over can be significant when coupled with other technical events. Moving average crossovers, or signals generated by other momentum indicators can be strengthed by a zero-line crossover in either direction.
In short, the EFI makes use of several powerful technical components and presents them in an easy to understand format. When combined with other indicators, you can better time your entry and exit points and be left with a better understanding of what’s happening in the marketplace.