Elder-Ray Index

The Elder-Ray Index, developed by Dr. Alexander Elder and described in his book "Trading for a Living," is a technical analysis tool that separates buying and selling pressure into two distinct components: Bull Power and Bear Power. The indicator is based on the premise that a moving average represents a consensus of value, and price deviations above or below it reflect the strength of bulls and bears. Bull Power is calculated as the session's high minus a 13-period exponential moving average (EMA), measuring how far buyers were able to push prices above the consensus value. Bear Power is calculated as the session's low minus the 13-period EMA, measuring how far sellers were able to push prices below consensus. In a healthy uptrend, the 13-day EMA should be rising, Bull Power should be positive and growing, and Bear Power should be negative but rising (becoming less negative). Dr. Elder's trading system uses Elder-Ray in conjunction with trend identification: buy when the 13-day EMA is rising and Bear Power is negative but increasing (bears are weakening during an uptrend), and sell when the 13-day EMA is falling and Bull Power is positive but decreasing (bulls are weakening during a downtrend). Divergences between price and Elder-Ray components provide additional signals.