✔️ Information reviewed and updated in April 2024 by Eduardo López
Indicators are a very important tool, as they help to synthesize all the information and provide it in an easier way so that traders can read and analyze it. The Elder Ray indicator is an oscillator-type technical analysis indicator that was developed with the intention of knowing when buyers are strongest than sellers, or sellers than buyers.
The objective of traders is to more accurately forecast how a cryptocurrency will perform in the future in order to make a profit. This is known as technical analysis, which is applied by traders who already have experience in these topics.
✨Definition of Elder Ray
This indicator was developed by Alexander Elder in 1989, and in addition to being named by its creator also for its resemblance to X-rays, since for the author this histogram had a resemblance to an X-ray.
Elder Ray is made up of two gauges: the Bull Power and the Bear Power. The first calculates the distance between the highest point of the recent bar and a moving average. When the result is positive, the bulls are those who control the value, and when it is negative they are the bears.
On the other hand, the second calculates the distance between the lowest point of the recent bar and a moving average. When the result is positive, the bears control the value, and when it is negative they are the bulls.
✨ What is it for?
The Elder Ray indicator is used to analyze and trade financial assets. Traders use the bullish and bearish power values, along with divergence, to be able to make trading decisions.
The long position is taken when the bear power is below zero, but is growing, and the bull power is higher than the previous one. On the other hand, the short position is taken when the value of the bullish power is positive, but it is decreasing, and the minimum of the bearish power is less than the previous one.
This indicator usually goes hand in hand with an exponential moving average (EMA) of 13 days to measure which is the consensus of the market value studied.. This depends on each one and can be modified according to the preferences of the operator.
Bullish power measures the ability of buyers to drive prices above the consensus value, and bearish power measures the ability of sellers to control prices below the consensus value.
✨ How is it obtained?
In order to obtain it, you must first calculate the EMA of 13 periods for the period of time you want to use. For example, if you want to use a daily chart then calculate the indicator according to the last 13 days.
Subsequently, you have to find the maximum price of the period and subtract the 13-period EMA to be able to obtain the value of the bullish power. Once you have it, you must find the minimum price of the period and subtract the EMA of 13 periods in order to obtain the value of the bearish power. Finally, all the steps must be repeated each time the selected period ends.
