Reprinted from: http://www.alpari.co.uk/en/market-analysis-guide/technical-analysis/elder-ray.html

Elder Ray Indicator

Elder Ray indicator is a mechanical trading system which measures buying and selling pressure over a specified period of time.

Elder Ray indicator

The calculation is based on the following principles:

• Price is an agreement between sellers, buyers and square traders.
• The Moving Average is the averaged price agreement.
• The highest price is the maximum of the bullish force over a specified period of time.
• The lowest price is the maximum of the bearish force over a specified period of time.

Elder Ray consists of three horizontal screens:

• A chart with a 13-period exponential moving average. When the moving average rises there is a bullish trend. When the moving average falls there is a bearish trend.
• A chart with a histogram of the Bullish Force.
• A chart with a histogram of the Bearish Force.

Bullish / Bearish Force is calculated as follows:

• Bull Power = High-EMA
• Bear Power= Low-EMA

where

• High - the maximum price over the period;
• Low - the minimum price over the period;
• EMA - exponential moving average.

If the price top is higher than the moving average, then the Bullish Force is above zero, so the bullish trend is confirmed. Otherwise, bulls are weak. If the price low is below the moving average this means that the downtrend is very strong. Otherwise, bears are weak.

Elder Ray Buy signals

• Moving average rises and Bullish Force indicator is below zero. The best time to buy is when the Bearish Force first falls below zero and then immediately rises.
• If new price highs are confirmed by new Bullish Force indicator highs, then it is a good confirmation of the bullish trend.
• Bearish convergence is another strong signal.

Elder Ray Sell signals

• Moving average moves downward and Bullish Force is above zero.
• Bearish trend is confirmed if the price lows and Bearish Force indicator lows move downward in parallel.
• Bullish divergence is another strong signal.

Moving Average shows the direction of a deal, and when the price approaches the moving average it is time to enter the market.