How to use the Elder Ray indicator?

The Elder Ray indicator is used for analysis and trading. In the end, we will see what are the trading rules established by Alexander Elder. However, before we get into the operation, it is necessary to know the components that give the essence to this indicator.

Components

To understand this indicator we must pay attention to five components: Price, exponential moving average, maximum price, minimum price, bullish power and bearish power.

  • Price: It is the closing price of the financial asset on which we are calculating the indicator.
  • Exponential moving average: The exponential moving average is a type of average that gives more importance to the latest data. It is calculated on the closing price.
  • Maximum price: It will be the price from which we will subtract the exponential moving average (EMA).
  • Minimum price: It is the price from which we will subtract the exponential moving average (EMA).
  • Bullish power: It is the component highlighted in green of the indicator. It is the result of calculating the maximum price – exponential moving average.
  • Bearish power: It is the component represented in red. It is the result of subtracting the minimum price – exponential moving average.

 

Rules for the Elder Ray indicator

  • Short entry signal

Corto elder Ray

Short elder Ray

The opportunity to sell short. That is, the signal to take a short position is given when the indicator turns from green to red and crosses the 13-period exponential moving average downwards. That is, when the indicator goes from only green to only red and also the price crosses the 13-period exponential moving average downwards.

In the above chart, the indicator is mixed most of the time. Therefore, the objective is to look for the point at which we move from a single green bar to a single red bar.

  • Long entry signal

Largo elder Ray
Long elder Ray

The opportunity to go long. Or in other words, to take a long position, occurs at the opposite moment. That is, when we go from only red to only green and there is an upward crossover of the 13-day exponential moving average. Obviously, it is difficult to find the exact point. This is why, according to experts, it is combined with other technical analysis tools.

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