Bull Power and Bear Power Indicator – Elder Ray Indicator

The Elder Ray Indicator, also known as the Bull Power and Bear Power Indicator, is a technical analysis tool that was developed by Dr. Alexander Elder. The Elder Ray Indicator is composed of two indicators, “bull power” and “bear power,” calculated based on a 13-period exponential moving average (EMA).

The Bull Power and Bear Power Indicator enable traders to measure the strength of bulls and bears in the market by comparing the difference between the high and low prices of a security to the closing price. The Bull Power line represents the bullish strength, while the Bear Power line represents the bearish strength.

When the Bull Power line is above the Bear Power line, it indicates that bulls are in control of the market, and when the Bear Power line is above the Bull Power line, it indicates that bears are in control. The Elder Ray Indicator is typically used in conjunction with other technical indicators to provide a more complete picture of market conditions.

What isthe Elder Ray Index？The Elder-Ray Index (also called the Elder Impulse System) isa technical analysis tool developed byAlexander Elder that uses the Bull Power andBear Power Indicators tohelp identify potential buying andselling opportunities inthe market. The index iscalculated bysubtracting the 13-period exponential moving average (EMA) ofthe Bear Power fromthe 13-period EMA ofthe Bull Power. The result isthenplotted ona chart tohelp traders identify potential buying andselling opportunities.

How Do Bull Power and Bear Power Indicator Works？

Bull Power and Bear Power Indicators determine two types of directional pressure in the market, one for bullish and one for bearish. Elder named the indicator after himself and X-rays, finding a commonality between X-rays‘ ability to reveal hidden information and his indicator’s ability to predict market movement.

• The Bear Power indicator measures the amount of buying pressure in an uptrend

• The Bull Power indicator measures the amount of selling pressure in a downtrend

These indicators are calculated by taking the difference between the high and low prices of a security over a certain period of time and then comparing that difference to the average true range over the same period of time.

The resulting value is then plotted on a separate chart. If the bull power indicator is increasing, it suggests that the bulls are in control and that the uptrend is likely to continue. Conversely, if the bear power indicator is increasing, it suggests that the bears are in control and that the downtrend is likely to continue.

How to Calculate Bull and Bear Power Indicators？

EMAs are always the starting point for comparison. According to Elder, a 13-day EMA of closing prices is a good value. Using the bars high price as a general yardstick for bullishness, Elder argued that it represents the highest point of bullishness. Therefore:

Bulls Power = High - EMA

Similarly, low prices represent the strongest period of bearishness. Our measure of general bearishness in the market is based on the low compared to the EMA. As a result:

Bears Power = Low - EMA

In most cases, the high of a period will be higher than the 13-day EMA. It is at such times that Bull Power is positive. It is possible, however, for the high of a period to fall below the EMA, and at such times, Bull Power can turn negative.

It is also likely that the low of a period will be lower than the 13-day EMA most of the time. A negative Bear Power is exhibited at such times. However, it is also possible that the low can rise above the 13-day EMA at times, which will result in a positive Bear Power indicator.

How to Read Bull Power and Bear Power Indicators？

When using the Bull Power and Bear Power indicators to trade Forex, traders can look for the following patterns and signals:

• Bullish Divergence: A bullish divergence occurs when the Bull Power indicator forms a higher low, while the price forms a lower low. This is considered a bullish signal, indicating that the bulls are gaining strength and prices are likely to rise.

• Bearish Divergence: A bearish divergence occurs when the Bear Power indicator forms a lower high, while the price forms a higher high. This is considered a bearish signal, indicating that the bears are gaining strength and prices are likely to fall.

• Bullish Crossover: A bullish crossover occurs when the Bull Power indicator crosses above zero. This is considered a bullish signal, indicating that the bulls are in control of the market and prices are likely to rise.

• Bearish Crossover: A bearish crossover occurs when the Bear Power indicator crosses below zero. This is considered a bearish signal, indicating that the bears are in control of the market and prices are likely to fall.

• Bullish Trend: When the Bull Power indicator is consistently above zero, it indicates that bulls are in control of the market and a bullish trend may be forming.

• Bearish Trend: When the Bear Power indicator is consistently below zero, it indicates that bears are in control of the market and a bearish trend may be forming.

Its important to note that Bull Power and Bear Power indicators should be used in conjunction with other technical analysis tools and indicators, as well as fundamental analysis, to make a more informed trading decision.

Forex Trading with Bull Power and Bear Power Indicator

Using the Bull Power and Bear Power Indicators for forex trading is relatively straightforward. One recommended approach is to use these indicators in conjunction with a 13-day exponential moving average. Here is a step-by-step guide for identifying buy and sell signals:

Identifying ‘Buy signal’



Two main conditions must be met in order for a ‘buy signal’ to be generated:

1. If the EMA (13) is pointing upwards; there is already or is about to be an uptrend

2. If the Bear Power is rising from the negative zone – the bars are rising.

There are two additional conditions that increase the chance of a successful trade but are not mandatory:

3. There is an upward peak in the Bulls Power histogram after the previous peak.

4. The price chart shows a lower new low than the previous one, while the histogram shows an above-previous low. Hence, Bears Power formed a bullish divergence.

You can place a pending buy order (or enter the market) when the signal forms a little higher than the high of the last two candlesticks. When a strong resistance area is reached or evidence of a downward reversal appears, place your Stop Loss behind the local low on the price chart.

Identifying ‘Sell Signal’



There are two main conditions that must be met for a sell signal:

1. If the EMA (13) is pointing downwards; there is already or is about to be a downtrend

2. If the Positive bull is losing strength – the bars fall below 0 and lower.

There are two more conditions that are not mandatory, but increase the likelihood that a trade will be successful:

3. There is a difference between the last bottom and the previous bottom in the Bears Power histogram.

4. The price chart shows a higher high than the previous one, while the histogram shows a new high below the previous one. The Bulls Power is forming a bearish divergence.

Place a pending sell order (or enter by the market) a bit lower than the low of the last two candlesticks after the signal appears. Whenever a strong support area is reached or some evidence of a reversal upwards appears, you should place a Stop Loss behind the local high on the price chart.

Usingthe Bulls power indicator tolocate an early entry isthe best way tobe profitable. You may want tofind divergence instead ofwaiting forthe histogram toleave the positive zone before going short. A hawk-eyed trader will catchearly entries this way.

Whenever the price andhistogram move inopposite directions, a divergence has occurred. Ifthe histogram shows that the bears are seriously undermining the bulls, but the price isstill going up, you can expect a sharp price decline.

Setting up the Bull Power and Bear Power Indicator in MT4



To set up the Bears and Bulls Power indicators in MetaTrader 4, you can follow these steps:

• Open the MetaTrader 4 platform and go to the “Navigator” window.

• Under the “Indicators” tab, scroll down and select “Bill Williams” from the list.

• From the Bill Williams indicators, select “Bulls Power” and “Bears Power” and add them to your trading chart.

• Once the indicators are added, you can customize their settings by right-clicking on the indicator on the chart and selecting “Properties”.

• In the properties window, you can adjust the settings such as the period, color, and style of the indicators.

• Click “OK” to apply the changes and the indicators will be added to the chart.

Its important to note that the default period of the indicators is 13, which is the recommended period to use these indicators with a 13-day exponential moving average.

Although you can use the indicators separately, it makes more sense to use them together as Elder intended. Additionally, plot the 13 EMA itself on the chart alongside both indicators. As a result, you will be able to increase the quality of your entry signals by combining oscillators with trend-following tools. Exponential moving averages serve as filters: they indicate trends, allowing traders to pick only signals following these trends.

Trading Strategies with Bull Power and Bear Power Indicators

Bull Power and Bear Power Indicators are technical indicators that measure the buying and selling pressure of a financial instrument. They are typically used to identify potential trend reversals and can be applied to various trading strategies. Here are a few different trading strategies that can be used with the Bull Power and Bear Power Indicators:

1. Trend Reversal Strategy

A Forex trend reversal strategy using the Bull Power and Bear Power Indicator can be based on identifying divergences between the price and the indicator. A bullish divergence occurs when the price is making lower lows and the Bull Power Indicator is making higher lows, while a bearish divergence occurs when the price is making higher highs and the Bear Power Indicator is making lower highs. Here is an example of how this strategy can be implemented:

• Identify the current trend: Use a trend-following indicator, such as a moving average, to determine the current trend.

• Look for divergences: Plot the Bull Power and Bear Power Indicators on the chart and look for divergences between the price and the indicator.

• Confirm the divergence: Use other technical analysis tools, such as candlestick patterns or support and resistance levels, to confirm the divergence.

• Enter a trade: If a divergence is confirmed, enter a trade in the direction of the potential reversal. For example, if a bullish divergence is confirmed, enter a long trade.

• Place stop loss: Place a stop loss below the most recent swing low for a long trade or above the most recent swing high for a short trade.

• Exit the trade: Exit the trade when a new divergence in the opposite direction is identified or when the price reaches a key level of resistance or support.

A good risk management plan along with other technical analysis tools and indicators, such as Moving Averages and Relative Strength Indexes, can help you make the most out of your trades.

2. Breakout Strategy

When the Bull Power and Bear Power Indicator shows a consistent uptrend or downtrend, it can indicate a potential breakout. A bullish breakout occurs when the price breaks above a resistance level and the indicator confirms the breakout with a strong uptrend, while a bearish breakout occurs when the price breaks below a support level and the indicator confirms the breakout with a strong downtrend.

Here is an example of how this strategy can be implemented:

• Identify key levels of support and resistance: Use technical analysis tools, such as trendlines or Fibonacci retracements, to identify key levels of support and resistance.

• Look for a consistent trend in the Bull Power and Bear Power Indicators: The Bull Power Indicator should be consistently above zero for a bullish trend and Bear Power Indicator should be consistently below zero for a bearish trend.

• Confirm the breakout: Wait for the price to break above a resistance level or below a support level and confirm it with a strong move in the Bull Power and Bear Power Indicator.

• Enter a trade: Once a breakout is confirmed, enter a trade in the direction of the breakout. For example, if the price breaks above a resistance level and the Bull Power Indicator confirms the breakout, enter a long trade.

• Place stop loss: Place a stop loss below the most recent swing low for a long trade or above the most recent swing high for a short trade.

• Exit the trade: Exit the trade when a new trend in the Bull Power and Bear Power Indicator is identified or when the price reaches a key level of resistance or support.

A breakout trading strategy can be risky, so its important to wait for the confirmation of the breakout before entering the trade.

3. Overbought/Oversold Strategy

A Forex overbought/oversold strategy using the Bull Power and Bear Power Indicator can be based on identifying extreme levels in the indicator. Here is an example of how this strategy can be implemented:

• Plot the Bull Power and Bear Power Indicators on the chart: The indicator will oscillate between positive and negative values, with positive values indicating bullish market conditions and negative values indicating bearish market conditions.

• Identify overbought and oversold levels: The Bull Power Indicator can be considered overbought when it reaches extremely high positive values and oversold when it reaches extremely low negative values. The Bear Power Indicator can be considered overbought when it reaches extremely low negative values and oversold when it reaches extremely high positive values.

• Confirm the overbought/oversold condition: Use other technical analysis tools, such as candlestick patterns or support and resistance levels, to confirm the overbought/oversold condition.

• Enter a trade: Once an overbought/oversold condition is confirmed, enter a trade in the opposite direction. For example, if the Bull Power Indicator is overbought, enter a short trade, and if the Bear Power Indicator is oversold, enter a long trade.

• Place stop loss: Place a stop loss above the most recent swing high for a short trade or below the most recent swing low for a long trade.

• Exit the trade: Exit the trade when the Bull Power and Bear Power Indicator reaches more normal values or when the price reaches a key level of resistance or support.

The overbought/oversold strategy should be used with caution, as markets may stay overbought/oversold for extended periods of time.

4. Divergence Trading Strategy

A Forex divergence trading strategy using the Bull Power and Bear Power Indicators can be based on identifying divergences between the price and the indicator. A bullish divergence occurs when the price is making lower lows and the Bull Power Indicator is making higher lows, while a bearish divergence occurs when the price is making higher highs and the Bear Power Indicator is making lower highs.

Here is an example of how this strategy can be implemented:

• Plot the Bull Power and Bear Power Indicators on the chart: The indicator will oscillate between positive and negative values, with positive values indicating bullish market conditions and negative values indicating bearish market conditions.

• Look for divergences: Compare the movements of the price and the Bull Power and Bear Power Indicator and look for divergences between them.

• Confirm the divergence: Use other technical analysis tools, such as candlestick patterns or support and resistance levels, to confirm the divergence.

• Enter a trade: Once a divergence is confirmed, enter a trade in the direction of the divergence. For example, if a bullish divergence is confirmed, enter a long trade.

• Place stop loss: Place a stop loss below the most recent swing low for a long trade or above the most recent swing high for a short trade.

• Exit the trade: Exit the trade when a new divergence in the opposite direction is identified or when the price reaches a key level of resistance or support.

It‘s worth noting that divergence is not a guaranteed signal of a trend reversal, it’s just a signal of potential trend change and should be confirmed by other technical and fundamental analysis.

5. Trend Following Strategy

A Forex trend following strategy using the Bull Power and Bear Power Indicator can be based on identifying the current trend of the market. Here is an example of how this strategy can be implemented:

• Plot the Bull Power and Bear Power Indicators on the chart: The indicator will oscillate between positive and negative values, with positive values indicating bullish market conditions and negative values indicating bearish market conditions.

• Identify the trend: When the Bull Power Indicator is above zero, it indicates a bullish trend, and when it is below zero, it indicates a bearish trend. Similarly, when the Bear Power Indicator is above zero, it indicates a bearish trend, and when it is below zero, it indicates a bullish trend.

• Enter a trade: Once the trend is identified, enter a trade in the direction of the trend. For example, if the Bull Power Indicator is above zero, enter a long trade, and if the Bear Power Indicator is above zero, enter a short trade.

• Place stop loss: Place a stop loss below the most recent swing low for a long trade or above the most recent swing high for a short trade.

• Exit the trade: Exit the trade when a new trend in the Bull Power and Bear Power Indicator is identified or when the price reaches a key level of resistance or support.

Trend following strategy can be risky, so its important to have proper risk management in place and use appropriate stop-loss levels to limit the risk.

Best Indicator Combinations for Bull Power and Bear Power Indicator

Bull Power and Bear Power Indicators are both momentum indicators that can be used to identify buying and selling pressure in the market. To get the most out of these indicators, its beneficial to combine them with other indicators to confirm trade signals and provide a more complete picture of market conditions. Here are a few examples of indicator combinations that can be used with the Bull Power and Bear Power Indicator:

• Relative Strength Index (RSI): RSI is a momentum indicator that can be used to identify overbought and oversold conditions. When combined with the Bull Power and Bear Power Indicators, it can provide additional confirmation of overbought/oversold conditions and help to avoid false signals.

• Stochastic Oscillator: The Stochastic Oscillator is a momentum indicator that compares the closing price of a financial instrument to its price range over a given period. Combining it with Bull Power and Bear Power Indicators, can help to confirm the Bull and Bear Power signals and to identify overbought and oversold market conditions.

• Bollinger Bands: Bollinger Bands are a volatility indicator that can be used to identify price breakouts. By combining them with Bull Power and Bear Power Indicators, traders can confirm breakouts and identify potential trend reversals.

• Moving Average: Combining the Bull Power and Bear Power Indicators with a moving average can help identify the current trend and confirm divergence signals. For example, if a bullish divergence is present on the Bull Power Indicator and the price is above the moving average, it can indicate a potential trend reversal.

Disclaimer: This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers personal circumstances, investment experience, or current financial situation.