Bull and Bear Power Indicators: A Guide to the Elder-Ray Trading System

Understanding the balance of buying and selling pressure is a key part of trading. The Bull and Bear Power (BBP) indicator, also known as the Elder-Ray Index, are designed to try and reveal that balance.  

This guide explains what these indicators measure, how they are calculated, and how you can use them in trading the financial markets.  

This material is for informational purposes only and not financial advice. Consult a financial advisor before making investment decisions. 

What is the Elder-Ray Index?  

Dr. Alexander Elder created the Bull and Bear Power indicators, which formed part of his Elder-Ray Index trading system. It was designed to reveal what's happening beneath the surface of price movements, much like an X-ray of the market.   

The Bull Bear Power (BBP) indicator can be found in the MetaTrader 4 and MetaTrader 5 trading platforms. It measures the strength of buying and selling to discover bullish and bearish conditions.  

It acts like other oscillators, such as the RSI and Stochastic, in that anything above the zero line indicates higher bull power and anything below the zero line indicates higher bear power.  

Traders can use the Bull Bear Power indicator to identify whether bulls or bears are in control of the market, overbought and oversold conditions, as well as divergences, which show changing momentum.

How the Bull and Bear Power Indicators Work 

At the heart of the Elder-Ray system is a well-known trend-following tool, typically a 13-period Exponential Moving Average (EMA). The EMA represents the average price of the market over a given period. 

• If bulls dominate, prices tend to stay above the EMA, and the EMA slopes upward. 
• If bears dominate, prices tend to stay below the EMA, and the EMA slopes downward. 

The Bull and Bear Power indicators then measure the distance between recent highs or lows and that EMA. 

BPP Indicator Calculations 

1. Bull Power = High − EMA 
   1. Positive Bull Power: bar high above EMA (bullish strength) 
   2. Negative Bull Power: bar high below EMA (weaker buying) 
2. Bear Power = Low − EMA 
   1. Negative Bear Power: bar low below EMA (bearish strength) 
   2. Positive Bear Power: bar low above EMA (weaker selling) 

By comparing the high and low prices to the EMA, you can estimate the strength of each side in the market.

Bull Bear Power Indicator in MetaTrader 4 

Bull and Bear Power indicators are separate indicators in MetaTrader 4. You will find them both contained within the 'Oscillators' folder in the 'Navigator' directory, as shown in the screenshot below: 

You can use them individually if you choose, but to set them up for use in the way originally designed by Alexander Elder, you would need to add both of them, along with a 13-period EMA. 

You can see how this set-up looks below, where we have added the three indicators to the chart:

The 13-period EMA is shown on the main price chart as a green dotted line. Below that is the histogram for Bears Power and then Bulls Power. 

Trading With the Bull and Bear Power Indicators

The Elder-Ray trading system combines analysis of trend-following and oscillator signals. Whether the system works or not has not been determined and this information is for educational purposes only.  

For long trades 

• EMA slope is upward (trend confirmation). 
• Bears Power is negative but rising (selling pressure weakening). 

Optional filters: 

• The latest Bulls Power peak is higher than the previous peak. 
• Bullish divergence in Bears Power (price makes new lows, Bears Power does not). 

In this scenario, a possible exit could be when the price makes a new high but Bulls Power fails to reach a new peak (waning bullish strength). 

For short trades 

• EMA slope is downward (trend confirmation). 
• Bulls Power is positive but falling (buying pressure weakening). 

Optional filters: 

• The latest Bears Power low is lower than the previous low. 
• Bearish divergence in Bulls Power (price makes new highs, Bulls Power does not). 

In this scenario, a possible Exit could be when the price makes a new low, but Bears Power fails to reach a new low (waning bearish strength). 

Combining the Elder-Ray With Other Tools 

While the Bull Bear Power (BBP) Indicator can give valuable insights into market pressure, Dr. Elder also emphasised that no single indicator should be used in isolation. Other tools that could also be used include: 

• Additional momentum oscillators like the RSI, Stochastic or MACD 
• Multiple time frame analysis from higher to lower time frames 
• Volume analysis 

It is also important to incorporate your own risk management rules into a trading system to ensure your account and mindset can deal with the wins and losses that occur.  

Practical Tips for Using Bull and Bear Power Indicators 

• Avoid counter-trend trades unless you have strong divergence and supporting evidence. 
• Watch for shifts in momentum. The transition from strong to weak Bull or Bear Power can signal turning points in the market. 
• Practice in a demo account first to learn how the indicator behaves in different market conditions and its suitability to your style. 

Final Thoughts 

The Bull and Bear Power indicators are used as part of the Elder-Ray index indicator. It offers a way to understand market pressure and the strength of bulls and bears in the market. Combining this analysis with other tools and proper risk management can help build a structured trading strategy.  

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