A Beginner’s Guide to Bullish and Bearish Forex Power Indicators
For oscillators that can generate buy and sell signals, consider adding power of bulls and bear power indicators to your Forex charts.
Although they are two different indicators, they work the same way and are usually used in tandem.
What are the Bulls Power and Bear Power indicators?
These indicators are the work of Alexander Elder and are quite well described by their names. The Bulls Power indicator tells you the strength of the bulls (the buyers). The Bears Power indicator tells you the strength of the bears (the sellers).
Sometimes they are also called “Elder Ray indicators”. Elder himself apparently coined the name and was inspired by the idea of an “x-ray” for the markets.
Key point: You can visualize the strength of buyers and sellers in the market by plotting Bull and Bear Power indicators.
How are the Bulls Power and Bear Power indicators calculated?
The calculations for the Bulls Power indicator and the Bears Power indicator are quite simple.
Although one could hypothetically use any exponential moving average, most often one uses the 13-day EMA, as Elder suggested when he came up with these indicators.
As always, you don’t have to worry about performing these calculations manually since your trading platform will take care of it for you.
Key point: Both the Bulls Power indicator and the Bears Power indicator are calculated using a simple formula comparing the EMA with the high or low respectively.
What do the Bulls Power and Bears Power indicators show us?
What we are looking at with the Bulls Power and Bears Power indicators is the distance between the EMA and the high/low. This corresponds to the influence of the bulls/bears to keep pushing prices past the EMA.
You will notice on your charts that the Bulls and Bears Power indicators can show negative or positive values.
Note that positive Bulls Power indicator values indicate bullish strength, while negative Bears Power indicator values indicate bearish strength.
Key point: The bullish and bearish power indicators help us visualize the strength of buyers and sellers respectively.
How to plot Bulls Power and Bear Power indicators on your charts?
Here are the steps to plot the Bulls Power indicator and the Bears Power indicator on your MT4 Forex charts.
- First, you need to plot the moving average on your chart because you need to look at it when planning trades. Click on Insertthen Indicatorsthen Orientationthen Moving average. In the Method drop-down menu, click Exponential. Then set the period to 13. Apply to close. Choose the color you like and add the EMA to your chart by clicking OKAY.
- Add the Bulls Power indicator to your chart. To do this, click on Insert, Indicators, Oscillatorsthen power of bulls. We recommend changing the color of the Bulls indicator to green to make it easily identifiable visually.
- Add the Bears Power indicator to your chart. To do this, click on Insert, Indicators, Oscillatorsthen bear power. We recommend changing the color of the Bears indicator to red to make it stand out from the Bulls indicator.
That’s all we can say about it. You are now ready to look for setups using the Bulls Power indicator and the Bears Power indicator.
Key point: You can add Bulls and Bears Power indicators to your charts in MT4 in a few quick steps.
How to use the Bulls Power and Bear Power indicators while trading?
Elder not only created this set of indicators, but he also came up with a method to trade with them. Here are its rules for buying and selling.
- The EMA goes up.
- Bears Power is negative but approaching 0.
While these are the only two obligatory conditions, the following conditions suggest an even more ideal configuration:
- The most recent histogram peak for Bulls Power is higher than the previous one.
- There is a bullish divergence between the Bears Power histogram and the price.
- The EMA falls.
- Bulls Power is positive but heading towards 0.
These optional criteria allow for even better configuration:
- The most recent histogram for Bears Power is lower than the one above.
- There is a bearish divergence between the Bulls Power histogram and the price.
Key point: Elder’s trading method using bullish and bearish power indicators requires you to plot the EMA on your chart and meet two entry criteria. There are also two optional criteria for even stronger setups.
General Tips for Using the Bulls Power and Bear Power Indicators
- Use all system components together. Elder created the Bullish and Bearish Power Indicators for use with the 13-Day EMA. They were not intended to function as stand-alone individual indicators.
- Test before going live. Before using this system to trade with real money, be sure to perform a backtest and a demo test. Once you know you have the potential to be profitable, you can risk real money.
- Modify the system if you wish, but again, test. You don’t necessarily have to use Elder’s system exactly as he designed it. But if you plan to make any changes, remember to test them first.
Key point: However you choose to use bullish and bearish power indicators in your trading, always check if you are profitable in the demo before going live.
Conclusion: Bullish and Bearish Power Indicators
You now know how to use the Bulls Power indicator, Bears Power indicator and 13-Day EMA together to generate buy and sell setups for Forex trading. Although Elder’s method may seem complex at first, it’s relatively simple once you see it in action.
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