Elder Force Index (EFI)
period = 13 (2–50) Overview
The Elder Force Index (EFI) was developed by Dr. Alexander Elder and introduced in his 1993 bestselling book "Trading for a Living". A professional trader, teacher, and practicing psychiatrist with over four decades of trading experience, Elder recognized that there are three components to a security's price movement: direction, extent, and volume. The EFI brilliantly combines these elements by multiplying price change by volume, quantifying the actual force or power behind each market move and revealing whether bulls or bears are truly in control.
The indicator's calculation is elegantly simple: EFI = (Current Close - Previous Close) × Volume. This raw value is typically smoothed using a 13-period exponential moving average to filter out noise while preserving essential information about market dynamics. The smoothed EFI oscillates above and below zero, with positive values indicating buying pressure and negative values showing selling pressure. The 13-period smoothing is ideal for swing traders looking to ride medium-term trends, while shorter periods can be used for day trading and longer periods for position trading.
Interpretation & Trading Signals
Primary Trading Signals:
- Zero Line Crossovers: Buy when EFI crosses above zero, sell when it crosses below
- Trend Strength: Rising EFI confirms uptrend strength, falling EFI confirms downtrend
- Extreme Readings: Very high/low values often precede reversals or pauses
- Moving Average Signals: EFI crossing its own MA generates additional signals
Divergence Trading:
- Bullish Divergence: Price makes lower lows while EFI makes higher lows - reversal up likely
- Bearish Divergence: Price makes higher highs while EFI makes lower highs - reversal down likely
- Breakout Confirmation: Strong EFI confirms genuine breakouts, weak EFI warns of false breaks
- Volume Analysis: EFI spikes reveal institutional activity and key levels
Best Practices:
- Combine with Other Tools: Use with moving averages, RSI, or price patterns for confirmation
- Time Frame Selection: 2-period EFI for day trading, 13-period for swing trading
- Market Conditions: Most effective in trending markets, prone to whipsaws in ranges
- Volume Quality: Works best in liquid markets with reliable volume data
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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