All traders want to be able to see what forces are behind price moves in a financial market. Some use one or two indicators to pinpoint a momentum; others apply five or ten indicators and tools. In any case, Bears Power and Bulls Power indicators are very popular among experienced traders trading in the financial markets.
One of the popular concepts is trading following the price. Usually, the price moves in waves: up and down. You can clearly see the price movements on the chart: up, down or flat.
However, it is only a half of success if you are able to see a direction of the market. To execute profitable transactions in the direction of the trend, you need to know the potential.
There are many ways to determine the strength of a market trend. However, the two main indicators are Bulls Power and Bears Power.
The strengths of the indicators are simplicity and accessibility. Look at the terminal of the Pocket Option broker to find both indicators in the list of standard tools for technical analysis.
How does it look and how to set?
Both instruments belong to the oscillators. That is why they are displayed in a separately under the graph.
Alexander Elder developed the two indicators involved are called Bulls Power and Bears Power.
He was a successful trader, author of many trading strategies and books about financial markets. The Bears Power indicator attempts to measure the market’s appetite for lower prices.
The Bulls Power indicator attempts to measure the market’s appetite for higher prices.
Calculating Bears and Bulls Power Indicators
To find the indicators, we need an EMA of the price. Elder recommends a 13-day EMA of closing prices. The high price represents the upper extent of bullish strength.
- Bulls Power = High – EMA (13)
The low price represents the lower extent of bearish strength and provides us a measure of general bearish strength in the market.
- Bears Power = Low – EMA (13)
Sometimes, traders use a period higher than the 13-day EMA. At such times, Bull Power is positive. Sometimes, however, the high of a period may drop below the EMA, and at such times, Bull Power turns negative.
If you use a period below the 13-day EMA, Bear Power is negative. There will be occasions, however, when the low rises above the 13-day EMA; and when this happens, Bear Power becomes positive.
Therefore, to set both indicators, you need to go to the “Active” menu, click on the pencil symbol, set the period to 13 and display as “histogram”. Now, you will be all set as shown in the screenshot below:
The indicators are self-explanatory. The slope of the EMA shows the direction of the trend. Trade in the same direction as the trend. Bulls Power and Bears Power help you to identify entry and exits points. There are two rules for buying:
- Buy when the market is in an uptrend
- Buy when Bears Power is below zero and moving higher
There are some conditions:
- The peak in Bulls Power has to be greater than prior one
- Watch for bullish divergence in Bears Power and the price
Bullish divergence in Bears Power should identify optimal opportunities for entry. Bullish divergence in this case being when prices are setting new lows, but Bears Power fails to make new lows. Furthermore, the exit signal is given when prices reach a new high, but Bulls Power fails to reach a new peak. This is a sign that the influence of bulls is starting to wane in the market. The rules for shorting the market are similar to the rules for buying:
- Only open a short position when the EMA signifies a downtrend
- You need Bulls Power to be in positive territory, but declining in value
Once again, we can add two optional conditions. These conditions are:
- The most recent low in Bears Power is lower than the prior bottom
- Bulls Power is falling from a bearish divergence
Buy the PUT option when the price pushed down from the SMA, and the “bearish power” push a line below the zero.
Use Bulls Indicator to determine an uptrend:
Buy the CALL option when the price is going up and the “bullish” forecast is obvious from the line positioned above the zero level.
While the combination of Bulls Power, Bears Power, and an EMA as part of the Elder-Ray method reveals useful information about the market, you can usually benefit from throwing another indicator or two into the mix. Choose indicators to understand what is happening in the market and consider all aspects of data.
As well as using multiple indicators, you may find it useful to look at more than one time frame. Try looking one time frame higher first, in order to get a feel for the bigger picture. For example, if you are aiming to trade using an hourly chart, make sure to first take a look at a four-hour chart, and then analyze the trend there.
The more you trade, the better you become. Before you start trading real money try out your trading ideas within a risk-free trading demo account.
