Elder-Ray Index

The Elder-Ray Index is a  technical indicator developed by Alexander Elder.  It measures the amount of buying and selling pressure in the market. The Elder-Ray Index consists of two separate indicators:  "bull power" and "bear power".

Elder-Ray Index

The Elder-Ray Index is a  technical indicator developed by Alexander Elder.  It measures the amount of buying and selling pressure in the market. The Elder-Ray Index consists of two separate indicators known as "bull power" and "bear power". These figures allow a trader to determine the position of the price relative to a certain exponential moving average (EMA).


Elder-Ray Index Formula

The Elder-Ray Index labels its indicators as "bull power" or "bear power". These are combined with an exponential moving average, which is a trend-following indicator essential to the calculation.

Bull power is a simple calculation, derived by subtracting an exponential moving average (perhaps a 13-day EMA) of closing prices from a high price of any given security. Bear power subtracts the EMA from the corresponding low price of that trading day.

The formula for the Elder-Ray Index is:

     Bull Power = Daily High - n-period EMA

     Bear Power = Daily Low - n-period EMA

Elder-Ray Index Interpretation

Understanding the Elder-Ray Index is inextricably linked to an understanding of oscillators, which are figures used to find turning points in the markets. Oscillators are seen to be indicative of the emotional extremes of both bulls and bears. These extremes are fleeting and unsustainable levels of optimism or pessimism that the vast majority of market participants are exhibiting. 

Bull Power is used to measure the potential for the price to increase above the moving average, while Bear Power is used to measure the potential for the price to decrease below the moving average. Long positions are taken when the Bear Power is below zero and there is a bullish divergence while short positions are assumed when the Bull Power is above zero and there is a bearish divergence.

Plots of Elder-Ray Index illustrating bear and bull power

Related Terms