What Are Bear and Bull Power Indicators?
Bear and bull power indicators in forex measure the power of bears (sellers) and bulls (buyers) to identify ideal entry points. Whenever the forex market is in a strong uptrend or downtrend, these power indicators can determine a trend’s strength. In our article, we will understand both bear and bull power indicators in detail.
What is bear power indicator?
Bear power indicator can determine the strength of bears or sellers in the market. It indicates whether the current currency pair prices are lower than the previous ones, signalling that bears are in a winning position. By estimating the relative strength of bears against bulls, the bear power indicator provides traders with the ideal entry or exit points. It is plotted on a histogram by subtracting the exponential moving average from the lowest currency pair price. It indicates a sell signal when the histogram trends below the zero level and the low-price level is lower than the exponential moving average. On the other hand, it indicates exit signals when the histogram trends above the zero level and the low price is more than the exponential moving average. The latter indicates increasing prices.
What is bull power indicator?
Bull power indicators indicate the strength of bulls or buyers in the market. The indicator is responsible for determining if the current currency pair prices are higher than the previous ones, indicating that bulls are in a winning position. By estimating the relative strength of bulls against bears, the bull power indicator provides traders with ideal entry or exit points. It is also plotted on a histogram by subtracting the exponential moving average from the high price level of the currency pair. It indicates a buy signal when the histogram trends above the zero-price line, with the high price level being more than the exponential moving average. On the other hand, it indicates a sell signal when the histogram trends below zero and the high price level is lower than the exponential moving average indicating a bearish phase.
How to calculate the bear and bull power indicators
Bear power indicator calculation = Lowest currency pair price – 13-day exponential moving average (EMA) of closing prices.
- The low price level will represent the maximum bearish strength during the time period.
- When we compare the low price level to the EMA, we will get a measure of the general bearish trend strength.
- The bear power will be negative when the low price is below the 13-day EMA.
- The bear power will become positive when the low price is above the 13-day EMA
Bull power indicator calculation = highest currency pair price – 13-day exponential moving. average (EMA) of closing prices.
- The high price level of the currency pair bar will represent the maximum of the bullish strength during the time period.
- Comparing the high price level to the EMA, we get a measure of the general bullish trend strength.
- The bull power is positive when the high price level is more than the 13-day EMA.
- The bull power is negative when the high price level is less than the 13-day EMA.
Elder Ray Index: The most used bear and bull power indicator
Elder Ray Index is a technical indicator especially developed to identify the bull or bear power in the market. It consists of both a bull power indicator and a bear power indicator that help measure the strength of both in the forex market. This EMA line shows the average value of the trending price levels in the bullish or bearish trend. When bulls are more powerful, the prices are said to increase, and EMA slopes upwards. When the bears are more powerful, the prices are said to decrease, and EMA slopes downward. With the bear power indicator, the Elder Ray Index measures how low the market is trending, and with the bull power indicator, it measures how high it is trending. This is done by comparing the bulls and bears to a third measure known as the 13-day EMA, which acts as the value’s baseline. The Elder Ray Index helps in confirming market signals and identifying ideal entry and exit price levels by combining trend-following and oscillating indicators like the Relative Strength Index (RSI), Money Flow Index and more.
How to plot the bear and bull power indicators on the chart?
- First, add the 13-day EMA to the price chart to understand the current market trend movement.
- Next, add the bulls power indicator to the chart by clicking insert – indicators – oscillators – bulls power. The bulls power indicator should be plotted in green colour so that it is easily identifiable.
- Lastly, add the bears power indicator in the same way as above and select the colour red for the same.
- Compare the bulls power indicator and bearish power indicator to the 13-day EMA to determine if the bulls are more powerful or the bears, and place a market order accordingly. If the bulls are more powerful, place a long order and if the bears are more powerful, place a short order.
Trade with the bear and bull power indicators
You can trade with the bear and bull power indicators through the Elder Ray Index strategy discussed above. Combine it with other trend-following indicators to get confirmed market signals. Sign up with Blueberry Markets, a global trading platform, to kickstart your forex trading journey. Sign up for a live trading account or try a risk-free demo account.
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