Bull Power and Bear Power oscillators were created by Dr. Alexander Elder to gauge the strength of buyers (bulls) and sellers (bears) in influencing price movements above or below a specific baseline. Together, these indicators are referred to as the Elder-Ray Index. Typically, a 13-period Exponential Moving Average (EMA) of closing prices serves as this baseline.
The principle behind these indicators is straightforward: the market is in a perpetual state of flux, with bears transforming into bulls and vice versa. These tools assist traders in monitoring these shifts and capitalizing on them.
What is Bull Power Bear Power Indicator?
Bear and bull power indicators in forex measure the strength of sellers (bears) and buyers (bulls) to pinpoint optimal entry points. These indicators can assess the strength of a trend during strong uptrends or downtrends in the forex market.
In this article, we will explore both bear and bull power indicators in detail.
Bear Power Indicator
The bear power indicator measures the strength of bears or sellers in the market. It shows if the current currency pair prices are lower than the previous ones, indicating that bears are in control. By evaluating the relative strength of bears against bulls, the bear power indicator helps traders identify the best points to enter or exit trades.
This indicator is plotted on a histogram by subtracting the exponential moving average (EMA) from the lowest currency pair price. A sell signal is generated when the histogram trends below the zero level, with the low price lower than the EMA. Conversely, an exit signal is indicated when the histogram trends above the zero level, and the low price exceeds the EMA, suggesting rising prices.
What is Bull Bear Power Indicator?
The bull power indicator gauges the strength of bulls or buyers in the market. It determines if current currency pair prices are higher than the previous ones, signifying that bulls are in control. By assessing the relative strength of bulls against bears, the bull power indicator assists traders in finding optimal entry or exit points.
This indicator is also plotted on a histogram, by subtracting the EMA from the high price level of the currency pair. A buy signal occurs when the histogram trends above the zero-price line, with the high price level exceeding the EMA. Conversely, a sell signal is indicated when the histogram trends below zero, and the high price level is lower than the EMA, indicating a bearish phase.
How to Calculate Bull and Bear Power Indicator?
Bear power is calculated using the formula:
Bear Power=Lowest currency pair price−13-day EMA of closing prices
– The lowest price during the period represents the maximum bearish strength.
– Comparing this low price to the EMA provides a measure of the overall bearish trend strength.
– Bear power is negative when the low price is below the 13-day EMA.
– Bear power becomes positive when the low price is above the 13-day EMA.
Bull Power Indicator Calculation
Bull power is calculated using the formula:
Bull Power=Highest currency pair price−13-day EMA of closing prices
– The highest price during the period represents the maximum bullish strength.
– Comparing this high price to the EMA provides a measure of the overall bullish trend strength.
– Bull power is positive when the high price is above the 13-day EMA.
– Bull power is negative when the high price is below the 13-day EMA.
Elder Ray Index: The Most Used Bear and Bull Power Indicator
The Elder Ray Index is a technical indicator designed to identify the strength of bulls and bears in the market. It combines both the bull power and bear power indicators to assess the strength of these forces in the forex market.
This index utilizes a 13-day Exponential Moving Average (EMA) line to represent the average value of price levels in a bullish or bearish trend. When the bulls dominate, prices tend to rise, causing the EMA to slope upwards. Conversely, when the bears dominate, prices tend to fall, leading to a downward sloping EMA.
The Elder Ray Index measures market trends by comparing bull and bear power indicators to the 13-day EMA, which serves as a baseline. The bear power indicator assesses how low the market is trending, while the bull power indicator measures how high it is trending.
By combining these indicators, the Elder Ray Index helps confirm market signals and identify ideal entry and exit points. It integrates trend-following and oscillating indicators such as the Relative Strength Index (RSI) and Money Flow Index to provide a comprehensive market analysis.
How to Plot the Bear and Bull Power Indicators On the Chart?
1. Add the 13-day EMA
– Begin by adding the 13-day Exponential Moving Average (EMA) to the price chart. This will help you understand the current market trend movement.
2. Add the Bull Power Indicator
– Go to the chart and click on “Insert” -> “Indicators” -> “Oscillators” -> “Bull Power.”
– Plot the bull power indicator in green for easy identification.
3. Add the Bear Power Indicator
– Similarly, add the bear power indicator by clicking on “Insert” -> “Indicators” -> “Oscillators” -> “Bear Power.”
– Plot the bear power indicator in red to distinguish it clearly.
4. Compare and Place Orders
– Compare the bull power and bear power indicators against the 13-day EMA to determine which is more dominant.
– If the bull power indicator shows greater strength, place a long order (buy).
– If the bear power indicator shows greater strength, place a short order (sell).
Trade with Bull-Bear Power Indicator
You can trade using the bear and bull power indicators through the Elder Ray Index strategy described above. By combining these indicators with other trend-following tools, you can obtain confirmed market signals. To begin your forex trading journey, consider signing up with Blueberry Markets, a reputable global trading platform.
Conclusion
For bear power signals, you may consider selling when the histogram (bars located at the bottom of the chart) moves below zero and the low price is lower than the EMA. This suggests a bearish trend. Conversely, it can also indicate exit signals when the histogram rises above zero and the low price moves above the EMA, indicating that the price is increasing. You should open forex accounts to start your trading journey.