Alexander Elder – American trader of Soviet origin, the author of more than 15 books on the topic of trading in stock and currency markets. He is also the developer of a dozen original strategies and indicators, one of which we will look at in a review.
Let’s warn you that there is no perfect indicator, because:
- We test Elder rays on a demo account on different time periods, taking into account important calendar fundamental factors. We are changing the settings on different currency pairs and are looking for the best option for bektest. The best will be a stable, even rising equity without sharp drawdowns and anomalous take-off.
- Add oscillators, analyze candlestick patterns. If the signals immediately catch the eye and there is no discrepancy, open a deal. If the signal is contradictory and not immediately visible, we do not risk.
- Do not open trades on the indicator at the time of the news release.
Elder Rays: Principles of Using the Tool
The indicator allows you to see changes in the balance of power between buyers and sellers, that is, to see in advance when traders’ bids can shift the market in one direction or another. According to the author’s concept:
- The current price level is a compromise between buyers and potential sellers who have not yet entered the market. MA (simple moving average) is the average value of this compromise.
- The upper shadow of the candle reflects the maximum power of the buyers, the lower – the sellers. The candle itself is the time period in which the sellers and buyers are confronted.
- The current strength of sellers or buyers is determined by the difference between their initial strength and the average value of the compromise.
The “Elder Rays” indicator is displayed simultaneously in three windows:
- The first one reflects the exponential MA for 13 days (basic parameter). Period sets the trader. If EMA is growing, then the trend is up, falling – down.
- In the second window, the Bulls Power graph is displayed in the form of a histogram (the strength of bulls-buyers and bear-sellers). The indicator formula is “MAX price – EMA (13)”. If for the most part the upper price column is higher than the MA, the trend is growing.
- In the third window, the Power of the Bears histogram. The essence of its construction is similar to the previous indicator, only in mirror image.
The discrepancy between histograms of buyers and sellers is called Elder Rays. A mandatory buy signal will be a growing trend (EMA is going up), “Bear Power” is rising, but remains negative (with a positive market, it is better not to enter). This means that the trend is in its inception (but not in a state of ending the trend). The Bull Power indicator updates the maximum. An additional signal will be a decrease in the “Power of Bears” as a result of bullish divergence.
A signal to open a short position will be a declining EMA trend, the Bull Power oscillator will become positive, but in the overall picture it will decline. The sellers oscillator is at a minimum, buyers oscillator decreases as a result of a bearish divergence. If “Bear Power” is negative, we do not enter the market.
The best moment of opening a deal is divergence between oscillators, confirmed by the EMA direction. A trader is required to see the discrepancy in time and determine its strength, which is gained only by the practical use of the indicator. In 2014, the Rays Elder tool ranked better. Although market trends have changed, the overall behavior of sellers and buyers remains the same. We recommend this indicator as the main one!