What is Index in Forex?

Every newcomer to the trading industry has faced difficulties with comprehending this complicated and unfamiliar system. Besides, it is very risky and overconfident to start trading on the largest world’s market without having profound knowledge of its basic elements. One of the most important things in Forex is an index. It represents a way of measuring the activity of a group of assets. It is based on a standard methodology and metrics and serves as a tool for evaluating the performance of investments. There are several types of indexes used for different purposes. Let’s take a deeper look at each of them. 

Relative Vigor Index 

The vigor index is widely used to determine the dynamics of the price changes of a certain financial instrument at a definite time period. This type of index serves to compare opening and closing prices and determines bulls’ or bears’ dominance on the market.

The RVI index is representative of the oscillators group. The basic idea lying at the core of the vigor index is the difference between the two markets. Closing prices on the bullish market are higher than opening ones in contrast to the bearish market where the situation is the exact opposite. In such a way, the vigor of the movement is calculated according to the price changes in a specified time. 

Force Index of Alexander Elder 

The next type of indexes is the Elder Force index. It also falls into the group of oscillators. It is used as an irregular indicator of bulls’ or bears’ dominance on the market. It is implemented to track the market dynamics and determine its strongest part – bullish or bearish. 

To provide accurate estimation, the above-mentioned Forex index indicator uses several parameters. It analyzes the price movement direction, the price change during a definite period, and the trade volume. The main task of the index is to show traders the direction of movement. A simple scheme is implemented to accomplish the task: if the indicator’s line is above 0, it means an upward trend and bulls’ domination. Consequently, if the indicator’s line is below 0, this is characteristic of the bears’ dominance. 

In Conclusion 

Both the Relative Vigor Index and the Force index of Alexander Elder are useful tools to track the events and changes on the market. They can be extremely helpful in identifying the domination and the duration of the current trend. However, they are not universal and may be advantageous when applied alongside other indicators.