The confrontation between bull/bear power often dramatically changes asset prices. That's why traders need to know who is dominating the market. On most trading platforms, bull and bear power indicators are the main parameters for analyzing market trends. Their usefulness for successful trading is hard to overestimate.
What are Bull and Bear Power Indicators?
Bull and bear power indicators are oscillator-type indicators that measure bears' and bulls' strength in the market. In general, they show buyers' and sellers' strength in certain periods, confirming the signals from trend indicators. This data is insufficient to build a trading strategy. High-quality market research requires analyzing a lot of information, which is why the best Forex robots will be useful. All this helps create the most accurate forecasts.
It is important to remember that the bear power trend indicator covers low and high asset prices. The bearish signal points to the possibility of opening a long position if it is below the zero line. The bars grow, approaching the zero threshold. If the bull's strength is above the zero line, it is possible to open a short position. In this case, the bars go down, approaching zero.
Thus, bull strength indicates buying prospects when its bars are rising. But when they fall, there are signals to sell. When analyzing bull-bear power factors, it is also worth considering that their zero value means that market forces are balanced between the interests of buyers and sellers.
The Elder-Ray Index
The Elder-Ray Index is the bull-bear power indicator. It shows the buyers' and sellers' trader market behavior over a certain period. In this aspect, numbers are crucial. If the Elder-Ray Index fluctuates around the zero line, it points to a certain equilibrium in the market, which means a balance between supply and demand. This situation leads to the fact that the price hardly changes. If the index in question rises above or below the zero line, this suggests that one of the market forces, bulls or bears, dominates.
According to the Elder-Ray index, bulls' strength is the difference between the maximum price and the exponential moving average. A value greater than zero indicates that the price is rising. A value less than zero signals that the market is dominated by sellers, which means prices may decline.
The Elder-Ray Index is useful for traders:
- It makes it possible to estimate how long a trend can last and how strong it is.
- Investors can more easily detect mistakes by distinguishing a correction from a trend.
- The index in question is particularly effective in predicting a likely change in trends.
How are Bull and Bear Power Indicators Calculated?
Its based on a 13-period exponential moving average recommended by Dr. Alexander Elder. The bull-bear power indicator formula looks like this.
- Bulls Power = High – EMA (13)
- Bears Power = Low – EMA (13)
Low is the lowest point of the shadow, which corresponds to the lowest price of the candle. High indicates the highest price and is located at the highest point of the shadow. EMA is an exponential moving average. It gives weight to individual periods.
Interpreting Bull and Bear Power Indicators
To understand what a bull-bear power indicator is, it is important to know who are the bulls and bears. Bulls are investors who buy. They wait for the price of assets to rise and then sell them at a higher price. They are the optimists of the financial markets. Bears do the opposite. They make money when the price falls. This situation often occurs in the market during economic crises. So bulls and bears are not only a representation of two opposing approaches to working in the financial markets. Each camp has its philosophy and view of the future of the global economy.
Indicators that show the strength of bulls and bears in the market are the main ones that a trader focuses on. They help avoid trading mistakes and build successful strategies for working in the market. The fact that demand exceeds supply is indicated by the growing strength of the bull. As a result, we should expect a significant price increase. In turn, bearishness means the price will decline because supply exceeds demand. The bull and bear strength indicators are signals for traders that indicate the need to buy or sell.
How to Use Bull and Bear Power Indicators?
The bull-bear indicator does not work in a flat market. It shows trend phenomena and is especially effective in divergence trading when a trade is opened in the direction of the indicator's movement. One of the signals of an upcoming trend change is a reversal of the balance in the market. That is why the analysis of the bull and bear power indicator is so effective, as the correct assessment of the superiority of one force over the other is crucial for successful trading.
Using the Bull and Bear Power Indicators in MetaTrader 4
For successful trading, a bull-bear power reading is vital. Based on the information received, the investor decides how to act in the market: buy or sell.
The bear-bull power indicator is located in the oscillator block on the MetaTrader 4 platform. The main setting parameter is the EMA period. It is present on all trading platforms. The rest of the settings are variable.
In MT4, a trader can select the “Apply to” option. It allows for choosing the type of price used for the calculation. It is also possible to change the moving average settings and style by making a line thickness and color convenient for the user. Setting price levels is especially helpful when a trader needs to study the history of the strongest trend movements. On the MetaTrader4 platform, the bull & bear indicator is displayed as vertical lines, with each line corresponding to a specific candlestick.
Tips for Forex Traders
Trading requires knowledge of how to use bull-bear power indicator. The following strategies will be especially beneficial for investors:
- Trend trading. It is a classic Forex strategy based on the moving average. If the price crosses it and the trend indicator points upward, it signals an uptrend. If the trend is moving downward, it points to a downtrend. The bulls-bears indicator confirms the trading signals analyzed by the investor.
- Channel trading. This strategy of working in financial markets uses not only bulls and bears power indicators but also channel factors with default settings. The trading method in question involves catching the moment when the channel narrows after its expansion. The more the channel widens, the higher the amplitude of price movement relative to the median. If the asset price moves too far away from the median, a trend reversal is expected. Channel trading involves a high degree of risk, as the asset price may well break through the channel boundaries. That is why, for this trading strategy to be successful, it is necessary to know how to read bull-bear power indicators.
- Divergence trading. This strategy is determined when the price moves in the opposite direction to the technical indicator, which can be recognized by several price extremes. For example, the following conditions should be met for a short position on the market:
- The bulls' strength indicator is above the zero line, and the bands are declining, forming two extremes (the second extreme should be lower than the first).
- The price is rising (the second extreme is higher than the first).
Forex trading bulls and bears is quite easy. The first step is to install this instrument in the trading terminal and launch it. The tools open in a separate window and are located below the main chart. The image consists of two lines and a graph. Most often, the yellow line indicates the strength of the bulls, and the blue one points to the bears. The above chart shows the strength of trends. The higher its bars grow, the stronger the market sentiment in question. If their size decreases, you should expect a change in the direction of price movement.
If the yellow line on the chart crosses the blue one and continues to move upward, it is worth buying assets. If the yellow line crosses the blue one in a downward direction, a more profitable step would be to sell.
Advantages and Limitations of Using Bull and Bear Power Indicators
Bull-bear power indicator has many tangible advantages for traders. The main ones are the ease of using the charts and the relative simplicity of analysis. If the market is dominated by bulls, the price is rising. Bears, on the other hand, signal a drop in asset value. Another important advantage of the bull-bear indicator is the ease of working with this tool, as it does not require any additional settings during installation.
The bull-bear power indicators are quite effective and understandable for traders. However, they also have limitations. The factors in question are quite sensitive to market volatility. As it increases, more false signals appear.
The Bottom Line
The bull-bear power indicator is the most commonly used by investors to confirm a trend. It shows the influence of sellers on the market. At the same time, these factors are somewhat interrelated. If the strength of sellers increases, the influence of buyers on the market decreases, and vice versa. The chart usually shows these two indicators simultaneously. This way, they confirm each other's signals.
For successful trading, investors need to know who is in charge of the market. This information helps correctly identify the beginning of a trend reversal and make the most profitable deals. The bull-bear indicator helps accurately determine the main trends prevailing in the market, which is the basis for a successful, properly diversified investment portfolio.
