Elder Ray: two forces measured against consensus value

It is among the most misused indicators there is, and the reason is simple: almost everyone reads it as a momentum oscillator, checking whether it is positive or negative. But its sign is nearly always the same, so reading the sign tells you nothing.

Where it comes from

Alexander Elder introduced it in Trading for a Living with one specific idea behind it: the moving average represents the market's consensus value, the price buyers and sellers currently agree on. Everything else is what each side manages to wrench above or below that agreement.

Hence the two formulas, which hold no mystery:

Bull Power = High − EMA(13)
Bear Power = Low − EMA(13)

Bull power measures how far buyers managed to push above consensus during the candle. Bear power, how far sellers managed to drive it below.

The mistake that ruins the reading

If the average is consensus value, then normally the candle's high sits above it and its low below. That is: bull power is almost always positive and bear power almost always negative. That is the default state, not a warning about anything.

The diagram's lower panel shows it with 12 consecutive candles of an uptrend: all 12 have negative bear power. Anyone trading the rule "sell when bear power is negative" would be selling continuously through a rising trend.

Why it does not work alone

This has to be said because it changes everything: Elder Ray is the second screen of a three-screen system, not a complete system.

In Elder's scheme, the first screen defines the trend on a higher timeframe — if you trade the daily, the weekly sets the trend. Only then does Elder Ray look, on the working timeframe, for a moment when the opposing force eases. And a third screen places the entry.

Used without the first screen the indicator has no idea which direction to look in, and then every reading admits two opposite interpretations. It is the main reason so many people find it "fails": it does not fail, they are missing half the system.

In practice the pairing is mechanical: weekly for the trend, daily for Elder Ray, four-hour for the entry; or daily, four-hour and one-hour if you work faster. What matters is the ratio between them, around four or five to one, not the particular timeframes. Too close together and the first screen stops being independent of the second; too far apart and the trend it reports changes so rarely that it no longer describes the market you are trading.

The combinations that do say something

The two middle rows are rarely cited and are interesting. Positive bear power means not even the candle's low dropped below consensus value: the market did not leave a single moment of weakness. That is real information about the trend's strength, but it is not an entry point, because whoever buys there buys at the furthest point from the average.

Two limits worth being clear about

It is measured in price units. A bull power of 300 means nothing on its own: it depends on whether the asset trades at 300 or at 60,000. Like the ATR, it is not comparable across assets or across eras of the same asset. To compare it you have to divide by price or by the ATR itself.

It inherits the average's lag. Both forces are measured against a 13-period EMA, so when price genuinely turns the average takes time to notice and both readings are distorted for several candles. It is not a different flaw from that of any average-based system: it is the same one, inherited.

Divergence, the best thing it has

If one reading justifies keeping Elder Ray on screen, it is this one.

When price makes a higher high than the previous one but that candle's bull power is smaller than at the prior high, it is saying something specific: buyers achieved a better price while moving it less far from consensus. The new high was made with less push.

That is different information from an RSI divergence, which is why both are worth watching. The RSI compares recent travel with itself; bull power compares the extreme with the consensus value at that moment. They may or may not agree, and when they do the warning is considerably more solid.

The bearish version is symmetric: a lower low with bear power less negative than at the previous low means sellers reached further while pushing less.

Common mistakes

Reading the sign. The central error, and the one that invalidates most of the uses you see around. The sign is the normal state; what informs is the direction of change.

Using it without an underlying trend. Without the higher screen the indicator has no direction to look in and every reading means whatever you want.

Comparing values across assets. It makes no sense until they are normalised by price or by volatility.

Swapping the 13 for something faster. Shortening the average pulls consensus toward current price and shrinks both forces until they are noise around zero.

On each asset

On Bitcoin the daily/weekly pair is the natural combination for the first two screens, and it is where the indicator makes most sense. On Ethereum it is worth also watching volatility compression: with the BBWP at lows both forces shrink together and their variations stop meaning much. On XRP news-driven jumps distort the 13-period EMA for weeks, so readings following such an episode should be handled with care.

Frequently asked questions