How to use Alexander Elder's Bulls and Bears Power indicator

How to Use Alexander Elder’s Bulls and Bears Power Indicators

Financial markets are a perpetual battlefield between buyers and sellers. To assess the balance of power, analysts utilize the Elder-Ray system developed by trader Alexander Elder. At its core lie two oscillators: Bulls Power and Bears Power. These tools help gauge how confident the dominant group of market participants is at any given moment.

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Logic and Calculation of Indicators

Elder’s concept is built on comparing extreme prices with an average value. The primary benchmark is the 13-period Exponential Moving Average (EMA), which reflects the market’s consensus on fair value. Bulls Power is calculated as the difference between the current bar’s High and the EMA(13). It shows the ability of buyers to push the price above the average. Bears Power is defined as the difference between the Low and the EMA(13), demonstrating the ability of sellers to drive the price below the average.

Practical Setup

To use the system, plot the EMA(13) on the chart and add both oscillators in separate windows below it. The direction of the moving average indicates the trend: if it is rising, the trend is bullish; if it is falling, the trend is bearish. The oscillators help identify entry points within these trends. Elder emphasized that these tools should not be used in isolation. Their primary task is to confirm the strength of the current momentum or warn of its weakening.

Buy Signals

Opening long positions requires several conditions to be met. First, the EMA(13) must be trending upward. Second, the Bears Power must be below zero but rising. This indicates that sellers have temporarily seized the initiative to create a correction, but their pressure is fading. A bullish divergence is also considered a reliable signal: when the price forms a new low, but the Bears Power histogram shows a higher low compared to the previous one.

Sell Signals

To open short positions, the inverse rules apply. The trend according to the EMA(13) must be downward. In this scenario, Bulls Power is above zero, showing a temporary pullback, but its bars begin to decline. This means buyers attempted to lift the market, but their strength has exhausted, and sellers are ready to resume the pressure. A bearish divergence, where a new price high is not confirmed by a peak in Bulls Power, serves as a strong warning of a decline.

Risks and Filtering

When using the system, it is vital to remember the risks during sideways markets. When the price moves in a narrow consolidation range, the EMA flattens, and oscillator signals can become chaotic. To filter out false entries, it is useful to use additional tools, such as support and resistance levels or the RSI indicator. Placing stop-loss orders behind the nearest local extremes remains an essential element of risk management.

Final Recommendations

Bulls and Bears Power tools help gain a deeper understanding of market structure by visually demonstrating the balance of power between buyers and sellers. Combining these oscillators with a trend filter allows traders to enter positions as corrections conclude, reducing the probability of chasing the price at the peak of a move. Although the methodology does not eliminate bad trades, a disciplined approach combined with strict money management rules can significantly increase trading consistency.