The Elder Ray Indicator, also known as the Bull/Bear Power Indicator, is a technical analysis tool developed by Alexander Elder, a well-known trading expert and author. It is designed to identify the strength of a trend by comparing the price of an asset to its moving average, with the goal of helping traders make informed decisions about buying and selling.
What is the Elder Ray Indicator?
To understand how the Elder Ray Indicator works, it is important to first understand how it is constructed. The indicator is made up of two components: the Bull Power and the Bear Power. The Bull Power is calculated by taking the current high price of an asset and subtracting the moving average. The Bear Power is calculated by taking the current low price of an asset and subtracting the moving average. When the Bull Power is higher than the Bear Power, it suggests that the bulls (buyers) are in control of the market and the trend is bullish. Conversely, when the Bear Power is higher than the Bull Power, it suggests that the bears (sellers) are in control and the trend is bearish.
The Elder Ray Indicator can be used in a variety of ways, but one common strategy is to use it in conjunction with other technical indicators to confirm the strength of a trend. For example, a trader may use the Elder Ray Indicator in combination with the Moving Average Convergence Divergence (MACD) indicator to help confirm a trend.
Some key characteristics of the Elder Ray Indicator include:
- It is a momentum-based indicator that measures the strength of a trend
- It is constructed using the Bull Power and Bear Power, which are calculated based on the current high and low prices of an asset
- It is typically used in conjunction with other technical indicators to confirm the strength of a trend
To apply the Elder Ray Indicator to the EUR/GBP currency pair, a trader would first need to calculate the Bull Power and Bear Power for the pair using the current high and low prices and the moving average. They would then compare the Bull Power to the Bear Power to determine the strength of the trend. If the Bull Power is higher than the Bear Power, it suggests that the trend is bullish and the trader may consider buying the pair. If the Bear Power is higher than the Bull Power, it suggests that the trend is bearish and the trader may consider selling the pair.
Here are three key points that support the use of the Elder Ray Indicator in trading:
- It helps traders identify the strength of a trend, which can be useful in making upfront buy/sell decisions
- It is easy to interpret and can be used in conjunction with other technical indicators to confirm a trend
- It is a widely used and respected indicator among technical traders
Elder Ray Strategy
Buy Signal
- The Bull Power is rising while the Bear Power is declining, suggesting that the trend is gaining momentum.
- The Bull Power crosses above the Bear Power, indicating a potential trend reversal.
- The Bull Power is consistently higher than the Bear Power, suggesting that the trend is bullish.
Sell Signal
- If the Bull Power begins to drop while the Bear Power increases, it may be an indication that the current trend is losing momentum.
- When the Bull Power falls below the Bear Power, it may signal a potential trend reversal.
- If the Bull Power consistently remains lower than the Bear Power, it may suggest that the trend is bearish.
Elder Ray Indicator Pros & Cons
Pros
- The Elder Ray Indicator can offer valuable insights into the potential strength of a trend.
- It’s simple construction and clear interpretation make it easily adaptable for use alongside other technical analysis techniques.
- It has gained a reputation for reliability among technical traders.
Cons
- As the Elder Ray Indicator relies on historical data, it may not always provide timely information and may only confirm trends after they have already begun.
- Past price movements do not always accurately reflect future market conditions, and the Elder Ray Indicator’s reliance on this data may result in incorrect predictions.
- In choppy or range-bound market conditions, the Elder Ray Indicator may produce false signals that do not accurately reflect the market’s current state.
Conclusion
The Elder Ray Indicator is a technical analysis tool that helps traders assess the strength of a trend. It compares Bull Power and Bear Power, where Bull Power is the current high price minus the moving average, and Bear Power is the current low price minus the moving average. By comparing these two values, traders can determine the market dominance of bulls or bears.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
