Developed in 1989, The Elder-rays use exponential moving average indicator, or EMA, the preferable period of which is 13 as a tracing indicator. The oscillators reflect the power of the bears and bulls.
The Elder-rays include the characteristics of trend following indicators and oscillators. There are three charts for placing the Elder-rays: on one side there is the price chart, on two other sides these is the bulls' power oscillator (Bulls Power), and bears' power oscillator (Bears Power).
Elder-rays can be used either individually or in bunch with various other tools. While using them individually, it is important to remember that the EMA slope defines the trend movement, and position should be opened in its direction.
The Elder Ray is a very precise and effective means of highlighting discrepancies between bull and bear power and prices and helping to choose right time for the best trading opportunities. Bulls and bears power oscillators are used for determining the moment for opening or closing of positions. One should open the following positions:
It's better to sell when:
- The Bulls Power oscillator remains positive, but declines step by step
- The Bulls Power oscillator declines leaving the Bears' discrepancy
- The last bottom of the Bulls Power oscillator is lower than the previous one
- There is a decreasing trend defined with the EMA fluctuations
The Elder Ray index actually consists of two indicators:
"Bull Power" (Daily High - n period moving average) and
"Bear Power" (Daily Low - n period moving average).
It's better to purchase when:
- The Bears Power oscillator is negative, but still growing
- The Bears Power oscillator increases after the Bulls discrepancy
- The last peak of the Bulls Power oscillator is higher than the previous one
- There is an increasing trend defined with the EMA fluctuations
It is better to keep back at the positive values of the Bears Power oscillator and not to open short positions when the Bulls Power oscillator is negative. The best time for trading is discrepancy between the Bulls and Bears Power and prices.
In fact, the Elder Ray index includes 2 indicators: "Bear Power" (Daily Low - n period moving average) and "Bull Power" (Daily High - n period moving average).
Bear Power is used to calculate the potential for the price to fall under the moving average. Bull Power is used for calculating the potential for the price to grow over the moving average. There are short positions when the Bull Power is more than zero and there is a bearish discrepancy. In addition, Long positions are assumed when the Bear Power remains under zero and there is a bullish discrepancy.