Trend Direction Force Index Indicator
Platform: MT4 Type: Oscillator Last update: September 26, 2024The Trend Direction Force Index Indicator for MT4 in essence is a forex oscillator fluctuating between -1 and + 1 absolute levels – what’s more, it’s available to free download. The indicator’s formula uses a combination of price movement and volume to evaluate the force behind these price movements and to recognize potential changes in the trend direction.
Sounds interesting? Let’s take a closer look at it and bring some practical trading examples.
First impressions
Its signals are displayed in a separate window placed below the main trading chart. Forex traders should consider three zones provided by the indicator. When it tilts towards the upside to the positive zone and the oscillator aims to reach the value of 1 – a bullish trend direction takes place. On the contrary, the oscillator leaning toward the negative zone of value -1 suggests an ongoing bullish direction of the trend.
Additionally, it has the advantage of showing a neutral zone where there is no significant bull or bear trend force, therefore the market has no distinct direction. This a great quality as knowing when not to trade is equally crucial to becoming profitable in forex trading.
Formula for the Trend Direction Force Index Indicator
Its formula is based on the following calculation:
Force Index (number of periods) = [Close (current period) – Close (prior period)] x Volume
In our case, the default period is set to 20.
Trading rules
Generally speaking, the signal trigger is based on the breakout from the neutral zone. Let’s deep dive into how to exactly use that forex indicator in a few simple steps.
Buy Signal
- Price forms a bullish price action pattern
- The indicator moves outside the neutral zone to the upside
- Open long trade when the above conditions are met
- Set stop loss a few pips below the most recent market’s low point
- Take profit whenever the indicator’s value moves back to the neutral zone
Sell Signal
- Price forms a bearish price action pattern
- The indicator moves outside the neutral zone to the downside
- Open short trade when the above conditions are met
- Set stop loss a few pips above the most recent market’s high point
- Take profit whenever the indicator’s value moves back to the neutral zone
Conclusion
The Trend Direction Force Index indicator comes in handy for forex traders struggling in recognizing the trend direction properly. In fact, all they need to do is take quick glance at the signal line if it is inside or outside the neutral zone. Although it can be utilized as a standalone trading tool, we find it an awesome addition to any forex strategy as a filter for deciding on the direction of entries.
