Full Review of the Force Index Trading System for Binary Options
I’ve read recently Michael’s article on the Force Index indicator and I thought to myself “Too bad we don’t have a full strategy that makes use of this tool”. To be honest, I haven’t used the Force indicator, but since Michael seems to like it, I took a closer look at it and I started searching for a strategy that uses the Force. A great resource of Forex strategies which can be easily adapted to Binary Options is forexstrategiesresources.com and that’s where I found this one, submitted by Janus Trader. I have no idea who he is but let’s see what his strategy can do.
How does the Force Index Trading System work?
First of all, you should read Michael’s article where he explains how to use the Force indicator and what are its strengths and weaknesses. This way you will find it easier to understand the full strategy. Ok, assuming you are familiar with the Force Index, let’s see what we need for deploying the strategy:
Force index – period 13
Smoothed Moving Average applied to the Force Index – period 3
Smoothed Moving Average on the chart – period 3
Exponential Moving Average on the chart – period 21
Stochastic 14, 3, 3 with levels 60 and 40
I’m sure by now you can tell this is a pretty complicated system. Well, you’re right, but that never stopped us before, right? Ok, so here’s how the chart should look like after the indicators are correctly plotted on it:
On the main chart we have a 3 period Smoothed MA (Green) and a 21 period Exponential MA (Red); the first sub-window contains the Force Index (Blue) with a 3 period Smoothed MA (dotted Red) applied to it and the last indicator is the Stochastic with settings 14, 3, 3. If you have any trouble setting up the charts, join the forum and ask for help. There will be a dedicated thread to this strategy and I will be happy to help you with all the problems that may arise.
Now that we have all the indicators up on the chart, we can go ahead and look at the rules of the strategy:
- 3 Smoothed MA is below 21 Exponential MA
- Force index is below 3 Smoothed MA (the one in the same window)
- Stochastic is below the level of 40
Here’s a picture to make sure everything is clear:
- 3 Smoothed MA is above 21 Exponential MA
- Force index is above 3 Smoothed MA (the one in the same window)
- Stochastic is above the level of 60
And here’s the picture to go with it:
Why does the Force Index System Suck?
The trades I showed you above are cherry picked in order to exemplify a perfect entry according to the system, but if you look back on your charts you will see a lot of failed trades. That’s normal for any strategy, but I feel the author of this system should explain with more details how a good entry should look like. For example, what should the trader do if conditions 1 and 2 are fulfilled for a Call but the Stochastic is approaching overbought? If it’s close to overbought, it means it is certainly above the 60 level so that would fulfill the third condition. Common sense tells me to stay away from that trade, but Stochastic can stay overbought/oversold for a long time and some traders actually see that as a sign on a strong move. So at the moment the strategy is not very explicit and this can lead to failed trades due to lack of clear rules.
Why the Force Index System doesn’t Suck?
I’ve noticed an interesting thing about the Force index and the 3 period Smoothed MA: whenever they are very close together, price is moving in a tight range, almost sideways. Look on my pictures and on your own charts to see it better. This means that the system is making us avoid difficult periods when price is unpredictable and that’s actually amazing because that’s when most of the losses happen.
Wrapping it up – It takes a long time to master The Force
This system is definitely not “newbie friendly” and I don’t recommend it to traders who have just started to learn about the market. Also, different assets have different movement and because this is a system initially created for Forex, it must be adapted to commodities, stocks or indices. I guess it all comes down to a trader’s style and the best system is the one that suits him/her the best. This is not really my cup of tea, but I am sure some traders will find value in it.