What is the bulls and bears power indicator?
As previously discussed, there are two main market mind-sets, bullish and bearish, and this indicator measures the actual strength of these market sentiments.
The Bulls and Bears power indicator was developed by the well-known technical analyst Alexander Elder and is described in his book, Trading for a Living. Although the concept may at first seem slightly complicated, it is actually very simple and uses just the price and an exponential moving average. Let’s study the two components: vdsvdsv
The main purpose of the bull power indicator is to estimate the relative strength of buyers versus sellers in the market at any given time. How does it do this? It simply measures whether the current price is higher than the previous one and if it is, then the bulls are considered to be ‘winning’. This is done by taking the difference between the highest price of the current bar, and an exponential moving average (13-period by default). Doing a manual calculation, you can use this formula:
Bull Power = High price - Exponential Moving Average.
The bear power indicator is simply the inverse of bull power. It shows the strength of the bears, which means that if the current price is lower than a previous one, the bears are ‘winning’. The main purpose of the bear power indicator is to estimate the relative strength of sellers against buyers. To do this, you take the difference between the lowest price and the exponential moving average (13-period by default). Doing a manual calculation, you can use this formula:
Bear Power = Low price - Exponential Moving Average (Learn more about EMA here).
This indicator is plotted as an oscillator. When using the bull power indicator, you should buy when the histogram moves above zero and the high price is higher than the EMA. It can also indicate exit signals, such as when the histogram falls below zero and the high price moves below the EMA meaning that the price is decreasing.
For bear power signals, you may look to sell when the histogram (bars located at the bottom of chart) move below zero, and the low price is lower than the EMA. It can also indicate exit signals, such as when the histogram rises above zero and the low price moves above the EMA meaning that the price is increasing.
It is often advisable to apply these indicators together with a trend indicator such as moving averages in order to seek a confirmation of the trend’s direction.
- What is the Bull and Bear power indicator?
- The Bull and Bear power indicator is a technical analysis tool developed by Alexander Elder. It measures the strength of buyers (bulls) and sellers (bears) in the market by comparing the highest and lowest prices to an exponential moving average.
- How is the Bull power calculated?
- Bull power is calculated by subtracting a 13-period exponential moving average from the highest price of the current bar. It indicates the strength of buyers in the market.
- How is the Bear power calculated?
- Bear power is determined by subtracting the same 13-period exponential moving average from the lowest price of the current bar. It reflects the strength of sellers in the market.
- How can traders use the Bull and Bear power indicator?
- Traders can use this indicator to identify potential entry and exit points. For example, a move above zero in the Bull power histogram suggests a buying opportunity, while a dip below zero in the Bear power histogram may indicate a selling opportunity.
- Can the Bull and Bear power indicator be used alone?
- While the indicator is valuable, it's often more effective when used in conjunction with other technical analysis tools, like trend indicators, to confirm market trends and directions.
- Is the Bull and Bear power indicator suitable for all trading styles?
- Yes, the indicator can be adapted to various trading styles, including scalping, day trading, swing trading, and position trading. It provides insights into short-term market movements as well as longer-term trends.
- How does market volatility affect the Bull and Bear power indicators?
- Market volatility can lead to more pronounced swings in the indicator's readings, which may offer more trading opportunities but also come with increased risk. Traders should consider market volatility when interpreting the indicator's signals.
Enhancing your trading strategy
While not as widely known as some indicators, the Bull and Bear power indicator offers a clear visualization of market control. It's particularly useful for traders who rely on oscillators and seek information about potential market shifts. The Bull and Bear power indicator is a valuable asset in a trader's toolkit, offering information on market trends and potential shifts. By understanding and applying this indicator, traders can make informed decisions and adapt their strategies to market conditions.
Learn to implement the Bull and Bear power indicator in your trades with a free Skilling demo account.
Bull and Bear power is not as well-known as some other indicators. However, it can provide a clear and useful visualization of who is ‘in charge’ of the market at that time. If you are a trader who uses oscillators and would like insight as to how the market might be about to shift, then this could be useful to you.