We know that when Popeye eats spinach, he gets stronger. And we know that when Superman encounters kryptonite, he gets weaker. But how do we know whether a stock is getting stronger or weaker?
Well, one way we can tell is by looking at its force index.
The force index is a mathematical calculation that goes like this:
First, we look at the difference between a stock’s closing price on two consecutive days. Then we take that difference and multiply it by the trade volume on the second day. If the number is above zero, it means our stock is getting stronger (called positive force). If below zero, it’s getting weaker (called negative force).
But the key here is to look at the force index over time, because just calculating it for one day isn’t going to tell us much. But when we do this a bunch of times in a given time period and compare the data, we can then use what we see to tell us whether a stock is, uh...eating its spinach or potentially brushing up against some kryptonite.