Elder-Rays Indicator is actually a combination of two indicators, commonly referred to the as Bulls Power and Bears Power. This indicator combines the aspects of trend following and oscillators along with the use of an exponential moving average with a look back period of 13 to trace the indicator.
The Elder-Rays indicator makes use of the exponential moving average as the main bias for the indicator. When the EMA (13) is sloping downwards the bias is to the short side which is then confirmed by looking at the Bulls and Bears. A rising value in the Bears indicates declining sentiment and thus validates the short position. Similarly, when the EMA is rising and the Bulls power starts to rise, the bias is to the upside. With this indicator, which is actually a trading system in itself, both the values of the Bulls and the Bears are to be considered as a whole. When trading, if any of the indicators (bulls or bears) is below zero, it indicates a weak signal and traders should stay aside. Divergences between the Bulls and Bears indicators can also be used as trading signals which indicate to interim weakness in the prevailing trends.
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