In crypto trading, one of the fundamental skills a trader should possess is the ability to accurately assess the strength of buyers and sellers, often referred to as bullish and bearish pressures. There are various methods available for conducting this analysis, but one of the simplest and effective approaches involves using a technical indicator known as the Elder Ray Index. Don’t you think it is worth exploring this indicator? If so, let’s get started!
1. Elder Ray Index: The Simplest Explanation
The Elder Ray Index is a momentum indicator developed by Dr. Alexander Elder. It helps trades understand the strength of both buyers (bullish forces) and sellers (bearish forces) in the market. The oscillator shows two plot lines: one expresses bull power and the other represents bear power. In simple terms, the indicator works as a gauge, showing whether the bulls or bears have the upper hand.
2. Calculating Elder Ray Index
Bull Power and Near Power are the prime components of Elder Ray Index, and so are the prime elements of the calculation. We have two different formulas to calculate them.
This part shows how much control the buyers have.
|Formula for Bull Power: Bull Power = High Price – EMA (Selected Period)
It is calculated by subtracting the EMA of the chosen period from the High Price of the candle.
This measures the strength of the sellers.
|Formula for Bear Power: Bear Power = Low Price – EMA (Selected Period)
It is calculated by subtracting the EMA of the chosen period from the Low Price of the candle.
3. Steps to Launch Elder Ray Index on a TradingView Chart
The entire process of launching the Elder Ray Index on a TradingView chart can be broken down into nine steps.
- Sign in to your TradingView account.
- Choose the cryptocurrency or asset you want to analyse.
- Click on the ‘indicator’ tab at the top of the chart
- In the search bar, type ‘Elder Ray Index.’
- Click on ‘Elder Ray Index’ from the search results.
- Press the ‘Add to Chart’ button that appears on the indicator.
- Click the settings of the indicator. Customise the parameters like periods, if needed.
- Click the ‘OK’ button to confirm the changes (if any) made.
- Now you can start looking for trading signals using the Elder Ray Index.
4. How to Interpret Elder Ray Index
The basic way to interpret the Elder Ray Index indicator is:
When Bull Power is positive, it means that the high price of the asset is above its EMA. When it is negative, it means the high price is below the EMA.
If Bull Power is positive and increasing, it indicates that the buyers are gaining strength. This suggests that there is an upward pressure on the price, and it is more likely to go up.
When Bear Power is positive, it means that the low price of the asset is above its EMA. When Bear Power is negative, it means that the low price is below the EMA.
If Bear Power is negative and decreasing, it suggests that the sellers are becoming more dominant. This means there is a downward pressure on the price, and it is more likely to decrease.
The Elder Ray Index indicator is a highly interesting tool. It is a rare tool that can help crypto traders to directly measure the strength of buyers and sellers in the market. It is simple to use and provides insights into bullish and bearish sentiment rightly. Like other indicators, this indicator also works better when used in combination with other indicators. Consider combining it with the Exponential Moving Average indicator.