EFI: Unveiling the "Power Detector" of the Stock Market

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Hi, fellow trading buddies, I am the clever cat who knows the secrets of the stock market, and today I'm going to reveal a magical treasure to you - the Elder's Force Index (EFI). It's like a "power detector" for the stock market, accurately measuring its pulse and strength! Doesn't that sound cool?

EFI, created by the legendary trading master Alexander Elder, made its first appearance in his 1993 book "Trading For a Living". This indicator is like a sharp sword, combining price, volume, and market strength into one. Simply put, the calculation formula for EFI is as follows: (current period closing price - previous period closing price) × volume. Then, we apply a 13-period EMA (exponential moving average) to it, and that's how we get EFI (13)!

The essence of EFI lies in its three core elements: direction, magnitude, and volume. Direction tells us whether it is bullish or bearish; magnitude tells us the strength of the bullish or bearish trend; while volume is the invisible force that tells us how much real money is supporting this battle in the market.

EFI, this oscillator, is like a sharp hunting dog, sniffing the market's traces above and below the zero line. A positive EFI value indicates that the bulls have the advantage, while a negative value indicates that the bears have taken over the battlefield. And when EFI forms a beautiful arc and creates a divergence, hey, that's a signal to buy or sell!

For example, when the stock price is falling continuously, but the EFI is quietly rising, this is our bullish divergence, suggesting that the bear market may be coming to an end. If the EFI also breaks above the zero line, then this signal becomes even stronger. Conversely, bearish divergence suggests the end of a bull market.

Having said so much, I have to remind everyone that although EFI is powerful, it is not omnipotent. When using it, it is best to combine it with other technical analysis tools to maximize its power.

In short, EFI is like that magical friend who can see through the thoughts of the stock market. It not only helps you grasp the pulse of the market but also gives you guidance at critical moments. Next, I will talk about its code:

This code is a TradingView Pine Script script used to calculate the Elder Force Index (EFI) indicator.

First, the script begins with the //@version=5 comment to specify the script's version as 5.

Next, the indicator() function is used to define an indicator. It includes the following parameters:

title="Elder Force Index": Sets the title of the indicator as "Elder Force Index".

shorttitle="EFI": Sets the abbreviation of the indicator as "EFI".

format=format.volume: Sets the display format as volume.

timeframe="": The timeframe is set as an empty string, indicating the current chart's timeframe.

timeframe_gaps=true: Allows for gaps between different timeframes.

Then, a variable cumVol = 0.0 is declared to store the cumulative volume, and the current candle's volume is added to the cumulative value using the addition assignment operator (+=). The function call nz(volume) is used to retrieve the volume of the previous candle (returns 0 if there is none).

Next, use a conditional statement to check if it is the last candlestick and the accumulated trading volume is zero. If the condition is met, call the function runtime.error("No volume is provided by the data vendor.") to throw a runtime error message: "No volume is provided by the data vendor." This error message indicates that the data vendor has not provided any trading volume data.

Then, use the input.int() function to define an input variable length for specifying the length of the EFI indicator, with a default value of 13. This function also sets a minimum value of 1.

Next, calculate the value of the EFI indicator by calling the ta.ema() function. This function takes two parameters: (ta.change(close) * volume), which represents the price change multiplied by the volume, and length, which represents the period of the moving average line. Here, the built-in function ta.change() is used to calculate the price change between the current candlestick and the previous candlestick.

Finally, use the plot() function to plot the chart of the EFI indicator, and set the color and title. Use the hline() function to plot the zero line (horizontal line) and set the color and title.