Elder Ray
Volume & money flow
Alexander Elder compares his indicator to an X-ray: the EMA is the 'consensus' level, and Bull Power and Bear Power show how far buyers and sellers were able to push the price above or below it.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Compute the EMA(13) of the closing price — that is the consensus value.
- Bull Power = the day's high minus that EMA. How far could the buyers push?
- Bear Power = the day's low minus that EMA. How far could the sellers push?
Bull Power = High - EMA(13)
Bear Power = Low - EMA(13)
Interpretation
- In an uptrend Bull Power is positive and Bear Power is negative but rising: the sellers are losing their grip.
- Elder's own buy rule: the trend is up (EMA rising) and Bear Power is negative but turning up. So you buy into a dip within an uptrend.
- Bull Power falling while the price rises is a classic divergence: the buyers are getting exhausted.
How the signal works in this scanner
Buy signal (green)Bear Power is negative but turning up relative to the previous bar (the selling pressure is drying up). Alternatively: a bullish divergence over 20 bars — the price makes a lower low while Bear Power makes a higher (less negative) low.
Sell signal (red)Bull Power is positive but turning down (the buying pressure is weakening), or there is a bearish divergence over 20 bars.
Watch-outs & pitfalls
- Elder meant this explicitly as the second screen of his Triple Screen system: first determine the trend on a higher timeframe, only then time the entry with Elder Ray. Used on its own it gives too many signals.
- Requires at least 30 trading days.