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:
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.
Bull and Bear Power is not as well known as some other indicators. However, it can provide a clear and useful visualisation of who is ‘in charge’ of the market at that time. If you are a trader who uses oscillators and would like an insight as to how the market might be about to shift, then this could be useful to you.