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A Cheat Sheet to the
Elder’s Force Index Trading Strategy

Learn about this profitable and widely used technique

In the foreign exchange market, the Elder’s Force Index Trading Strategy is one of those approaches that many traders are grateful for. Out of many aspects of the tool, they appreciate its money management rule the most; it encourages the need for the monitoring of the amount of investments you put in. If you are interested in a profitable and widely used technique, it’s something worth checking out.

Utilize strategy in your forex trading
Check Elder's Force Index Trading Strategy for its money management capability to monitor
your level of money investment and its movement.  (Image by Pixabay.com)

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.

The formula:

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).

Step-by-Step

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.

Steps:

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.

And, Remember…

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

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"Money is not an invention of the State. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the State."

Carl Menger - the founder of the Austrian school of economics