Elder ray indicator: bull power and bear power
The elder ray indicator looks at market pressure in two parts: bull power and bear power. Both are measured around a moving average, which can help traders compare buying and selling pressure within a wider trend.
This guide explains how the indicator is calculated, how some traders read it on a chart, and why it's usually used with other tools rather than on its own.
Takeaways
- The elder ray index uses two histograms: bull power and bear power.
- Bull power compares the session high with a moving average.
- Bear power compares the session low with the same moving average.
- The standard setting is a 13-period exponential moving average (EMA).
- Dr Alexander Elder designed the indicator to be used with a higher-timeframe trend filter.
- Divergence between price and the histograms is one of its most watched uses.
- Like any indicator, it can give unclear or false signals, especially in sideways markets.
What is the elder ray index?
The elder ray index is a technical indicator developed by Dr Alexander Elder. It aims to show the strength of buyers and sellers behind price movements by using two readings: bull power and bear power.
Elder compared the indicator to an X-ray of the market because it tries to look beneath the price chart and highlight buying and selling pressure. On most charts, it appears as two histograms below the main price chart, with each moving around a zero line.
Rather than giving a simple buy or sell reading, the elder ray separates the analysis into two parts:
- Bull power looks at how far buyers push price above its recent average.
- Bear power looks at how far sellers push price below its recent average.
Read together, and with a trend filter, these readings can help traders build context around whether buying or selling pressure may be increasing or easing.
Elder ray indicator at a glance
| Component | What it compares | What it may suggest |
|---|---|---|
| Bull power | Session high minus the 13-period EMA | How far buyers pushed price above its recent average |
| Bear power | Session low minus the 13-period EMA | How far sellers pushed price below its recent average |
| Zero line | Histogram value above or below zero | Whether the high or low sits above or below the EMA |
| Trend filter | Higher-timeframe direction | Whether a signal aligns with the broader market move |
| Divergence | Price direction versus histogram direction | Possible easing in buying or selling pressure |
Bull power and bear power explained
Bull power and bear power answer different questions about the same trading session.
Bull power
Bull power measures buyer strength by comparing the session’s high with the moving average. If bull power is positive and rising, buyers are pushing the high further above the average. If bull power is falling, that buying pressure may be easing, even if the reading remains above zero.
Bear power
Bear power measures seller strength by comparing the session’s low with the moving average. If bear power is negative and falling, sellers are pushing the low further below the average. If bear power is rising, or becoming less negative, selling pressure may be easing.
Reading them together
Some traders focus not only on whether bull power or bear power is above or below zero, but also on the direction of each histogram. In an uptrend, bull power is often positive, while bear power may start to rise from negative levels. In a downtrend, bull power may weaken, while bear power may fall. These patterns do not confirm what price will do next, but they can add context to the wider trend.
How is the elder ray index calculated?
Both parts of the elder ray indicator are calculated by comparing price with a moving average.
The formulas
| Component | Formula |
|---|---|
| Bull power | High − 13-period EMA |
| Bear power | Low − 13-period EMA |
The 13-period EMA of closing prices is the shared reference line. Bull power uses the session high, while bear power uses the session low. This means the two readings look at the full range of the candle in relation to the moving average.
Worked example
| Input | Value |
|---|---|
| 13-period EMA | 100 |
| Session high | 102.50 |
| Session low | 99 |
| Calculation | Result |
|---|---|
| Bull power = 102.50 − 100 | +2.50 |
| Bear power = 99 − 100 | −1 |
In this example, buyers reached 2.50 above the average, while sellers pushed 1 below it. That does not make it a trading signal on its own, but it shows how the indicator compares the candle range with the EMA.
Past performance is not a reliable indicator of future results.
Reading it on a chart
Bull power and bear power are usually shown as histograms in a panel below price. The EMA is usually drawn on the price chart itself.
When reading the chart, traders may look at:
- Whether each histogram is above or below zero.
- Whether bull power and bear power are rising or falling.
- Whether the readings align with the wider trend.
- Whether price and the histograms are starting to diverge.
Past performance is not a reliable indicator of future results.
How to read elder ray signals
The elder ray is usually read with the trend, not against it. In Elder’s approach, the wider trend comes first, and bull power and bear power are used to help assess possible timing.
| Market context | What some traders watch for | Possible interpretation |
|---|---|---|
| Uptrend | Bear power is negative but rising, while bull power is rising | Selling pressure may be easing as buyers become more active |
| Downtrend | Bull power is positive but falling, while bear power is falling | Buying pressure may be easing as sellers become more active |
A possible long setup
In an uptrend, some traders watch for bear power to be negative but rising. This can suggest that selling pressure is easing. If bull power is also rising, the combination may suggest that buyers are becoming more active within the trend.
A possible short setup
In a downtrend, some traders watch for bull power to be positive but falling. This can suggest that buying pressure is easing. If bear power is also falling, the combination may suggest that sellers are becoming more active within the trend.
Using elder ray with an EMA trend filter
The elder ray was developed as part of Elder’s triple screen system, where traders look at more than one timeframe before making a decision. In this framework, the indicator isn't treated as a standalone signal.
The trend comes first
Elder’s method starts by identifying the trend on a higher timeframe. For example, a trader might use the slope of an EMA on a weekly chart to assess the wider direction, then look for elder ray signals on a daily chart.
Why traders may filter by trend
Signals are usually considered in the direction of the higher-timeframe trend. That means looking for possible long setups when the broader trend is up, and possible short setups when it's down.
Without this filter, the elder ray may produce more conflicting readings, especially in markets that lack clear direction.
Elder ray divergence
Divergence is another common way traders read the elder ray indicator. It happens when price moves in one direction, while bull power or bear power moves in another.
| Divergence type | What price does | What the histogram does | What it may suggest |
|---|---|---|---|
| Bullish divergence | Makes a lower low | Bear power makes a higher low | Selling pressure may be easing |
| Bearish divergence | Makes a higher high | Bull power makes a lower high | Buying pressure may be fading |
- Bullish divergence: forms when price makes a lower low, but bear power makes a higher low. This may suggest that selling pressure is easing, even though price has continued to fall.
- Bearish divergence: forms when price makes a higher high, but bull power makes a lower high. This may suggest that buying pressure is fading, even though price has continued to rise.
Some traders pay close attention to these divergences, but they should not be read in isolation. Divergence can persist for some time, and price may continue to move against the signal before any reversal or pause appears.
Past performance is not a reliable indicator of future results.
Common elder ray settings and timeframes
The main setting for the elder ray indicator is the moving-average length. The timeframe pairing also matters, especially for traders using it as part of a wider strategy.
The 13-period EMA
Elder’s original setting uses a 13-period EMA. This remains the standard reference point and is often the simplest place to start when learning how the indicator behaves.
Adjusting the period
A shorter EMA makes bull power and bear power more responsive, but it can also create more noise. A longer EMA smooths the readings, but it may react more slowly. Changing the setting moves away from the original default, so traders may wish to test any adjustment before using it in live market conditions.
Timeframe pairing
Within the triple screen approach, a common pairing is a weekly trend filter with daily elder ray signals. The same principle can be adapted to other trading styles, but there is no single setting that works best in every market or timeframe. Testing on a demo account can help traders understand how the indicator reacts before using it with real funds.
Combining the elder ray index with other indicators
The elder ray can be easier to interpret when used with other tools that add trend, momentum or volume context.
Moving averages
The EMA is already central to the elder ray. A longer moving average can also help define the higher-timeframe trend that filters signals.
MACD
Elder often paired the elder ray with MACD in his triple screen method. MACD can provide a separate view of momentum, which may help traders assess the broader trend.
RSI
RSI gives an overbought or oversold reading. Some traders use it alongside the elder ray to compare pressure readings with another view of momentum.
Volume
Some traders give more weight to elder ray readings when volume also supports the move. For example, rising volume alongside a rising bull power reading may add context, though it does not confirm what price will do next.
No single indicator gives a complete view of the market. Combining the elder ray with other tools can add context and may help traders avoid relying too heavily on one signal.
Risk management with the elder ray index
The elder ray can help traders read buying and selling pressure, but it does not remove trading risk. Like any technical indicator, it can give unclear or false signals, especially when markets move sideways or change direction quickly.
When it's least reliable
The elder ray is generally less useful when there is no clear trend. In rangebound or choppy markets, bull power and bear power may shift frequently, creating mixed signals. It may also be less reliable when used without the higher-timeframe trend filter that Elder originally paired it with.
Stop-loss placement
Elder suggested placing stops beyond a recent swing low for long positions, or beyond a recent swing high for short positions, rather than at an indicator value.
Using it in context
Trend direction, EMA length and timeframe choice all affect how traders interpret elder ray signals. CFD trading carries a high level of risk, so position sizing, risk-management tools and regular monitoring remain important, regardless of what the histograms show.
Using the elder ray indicator in CFD trading
Contracts for difference (CFDs) allow traders to speculate on rising or falling markets without owning the underlying asset. This means the elder ray indicator may be used to assess possible long or short setups across markets such as shares, indices, forex and commodities.
Because CFDs are leveraged products, profits and losses are based on the full value of the position, not just the margin used to open it. This makes risk management especially important when using any technical indicator.
The elder ray indicator should not be used as a standalone reason to open a CFD trade. Traders may use it as one part of a wider process, alongside trend analysis, market context, position sizing and risk-management tools.
As with all technical indicators, the elder ray shows past price behaviour. It does not predict future market movement, and signals can fail.
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