If you’re just beginning to explore the world of digital contracts, you’ve likely heard that indicators are essential tools for market analysis. Today, let us talk about two useful indicators: Bulls Power and Bears Power.
These tools are particularly useful because they help traders determine who currently has control of the market—buyers (bulls) or sellers (bears). Let’s take a closer look at how they work and how you can use them effectively when trading on the Pocket Option platform.
More About Bulls Power and Bears Power
A renowned trader and analyst Alexander Elder developed the Bulls Power and Bears Power. He first introduced these tools in his influential book “Trading for a Living”, and they’ve since become widely adopted by traders and financial analysts around the world. He believed that “to succeed in trading, you must act like a scientist—learn to analyze indicators objectively and follow the evidence, not your emotions.”
As mentioned earlier, these indicators help identify who currently dominates the market—buyers (bulls) or sellers (bears).
Bulls Power measures the strength of buyers and their ability to push prices upward. When the indicator shows a positive and rising value, it suggests that bullish sentiment is strong.
In turn, Bears Power, on the contrary, shows how much sellers can “lower” the price. If the value is negative and decreasing, it indicates the strength of the bears.
The analysis of the bullish or bearish trends on the market is what tools like Bulls Power and Bears Power provide: a clear, data-driven view of market sentiment. Thus, both tools help the trader to predict possible price movements. Isn’t it one of the main factors of success in binary options trading?
How are Bulls Power and Bears Power calculated?
Both Bulls Power and Bears Power indicators are derived from the Exponential Moving Average (EMA), a type of moving average that gives more weight to recent price data. This makes the EMA more responsive to current market conditions compared to the Simple Moving Average (SMA).
In technical analysis, moving averages help filter out market “noise” and reveal the underlying trend. The EMA used in these indicators typically has a short period to better reflect short-term market momentum. The Bulls Power indicator measures the strength of buyers. It is calculated as the difference between the highest price (High) of a candle and the EMA:
The formula looks like this: Bulls Power = High – EMA.
A positive and increasing Bulls Power value indicates that buyers are successfully pushing prices above the average trend level, signaling growing bullish strength. When Bulls Power begins to decline—even while prices are rising—it may warn of a weakening uptrend.
The Bears Power indicator reflects the strength of sellers. It is calculated as the difference between the lowest price (Low) of a candle and the EMA:
The formula looks like this: Bears Power = Low – EMA.
A negative and decreasing (i.e., more negative) Bears Power value shows that sellers are driving prices further below the average, indicating increasing bearish pressure. If Bears Power starts to rise (becomes less negative) during a downtrend, it could suggest weakening bearish momentum.
How to trade with Bulls Power and Bears Power?
There are many applications for Bulls and Bears indicator for use in market analysis.
- Definition of trend
If the Bulls Power value is rising and Bears Power is falling, this may indicate the beginning of an uptrend (the price will rise). If the opposite is true, this may indicate the formation of a downtrend (the price will fall).
- Finding entry points
One popular way to use this tool is to look for moments when Bulls Power and Bears Power cross the zero line. For example:
- If Bear Power crosses the zero line from bottom to top, this may be a signal to buy a CALL option.
- If the Bull Power crosses the zero line from top to bottom, this may be a signal to buy a PUT option.
- Divergence
Divergence is a situation when the price and the indicator move in different directions. For example, if the price is rising and Bulls Power is falling, this may indicate weakness of the bulls and a possible trend reversal.
The Bulls Power and Bears Power indicators are straightforward yet powerful tools that can enhance your understanding of market dynamics. By measuring the strength of buyers and sellers in relation to the moving average, these indicators provide valuable insights into who currently controls the market. Whether you’re a beginner or an experienced trader, incorporating Bulls and Bears Power into your analysis can help you make more informed trading decisions and improve your overall strategy.
