Elder-Ray Index

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DEFINITION of 'Elder-Ray Index'

A technical indicator developed by Alexander Elder that measures the amount of buying and selling pressure in the market. This indicator 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).

Bull Power = Daily High - n-period EMA
Bear Power = Daily Low - n-period EMA

INVESTOPEDIA EXPLAINS 'Elder-Ray Index'

Technical traders will use the values of the bull and bear power along with divergence to make transaction decisions. Long positions are taken when the bear power has a value below zero but is increasing and the bull power's latest peak is higher than it was previously. A short position is taken when the bull-power value is positive but falling and the bear power's recent low is lower than any other previous bottom. The slope of the EMA can also be used in both cases to help confirm the direction of the trend.

RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Bear

    An investor who believes that a particular security or market ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Bottom

    The lowest point or price reached by a financial security, commodity, ...
  5. Bull

    An investor who thinks the market, a specific security or an ...
  6. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
RELATED FAQS
  1. Why is the Elder-Ray Index important for traders and analysts?

    Dr. Alexander Elder created the Elder-Ray index as a way to assess the current buying and selling influences in the market. ... Read Full Answer >>
  2. How do I use Elder-Ray Index for creating a forex trading strategy?

    The Elder-Ray index can be used to create a forex trading strategy for critical market turning points where a market reversal ... Read Full Answer >>
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