About the EFI
The Elder’s Force Index (EFI) Trading Strategy refers to the employment of the technical indicator, the Elder’s Force Index. It requires trading on more than a single time frame based on daily and weekly charts. According to the developer, Alexander Elder in his publication, Trading for a Living, when using the tool, you need to focus on 3 things: (1) magnitude of volume, (2) magnitude of movement, and (3) price direction.
EFI = volume X (today’s closing price – yesterday’s closing price)
Faring the forex market with the Elder’s Force Index Trading Strategy, however, isn’t usually simple. New market highs and lows should come up regularly for the evaluation of market breadth. And, sometimes, you need to bring in other tools; among the useful technical indicators are the modified risk calculator, put/call equity ratio, and Relative Strength Index (RSI).
The Elder’s Force Index Trading Strategy is affiliated to the magnitude of volume, right? If there are volume surges, apparent spikes will be observed. Among the trading groups that can benefit the most with the EFI are day traders; they can establish winning positions during volatile moments. Since the technique can be rather difficult to employ, following a systematic procedure is advised.
1. Identify extreme conditions; look for overbought and oversold stocks.
2. Focus on a recent peak.
3. Once the stock reaches a recent peak, set a position.
4. According to the more favorable market position, you can buy / sell stocks.
In the Case of Whipsaws, What’s the Solution?
A common limitation of the Elder’s Force Index Trading Strategy is the occurrence of whipsaws; when the indicator oscillates around 0, you need to be concerned. If you’re waiting to move farther (whether up or down) from 0, you may be anticipating a streak of losses prior to the development of a strong price action. Therefore, the solution is to increase the number of periods; although entry and exit signals can be delayed, the tactic can help, especially if you insist on pursuing a particular trend.
By employing the Elder’s Force Index Trading Strategy, you can take on the forex market by storm. Keep in mind, however, that it’s based on mean-reversion; if you choose to anticipate the time when the market goes in your favor, make sure that you are committed. Granted you’re patient, and of course, careful, you may want to put the strategy to play.
Content References: http://www.admiralmarkets.com/education/articles/forex-strategy
Last update: 14. February
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