To analyze market tops and bottoms with the Elder Ray Index, look for divergences between price action and the Bull Power or Bear Power indicators. A bearish divergence (rising price but falling Bull Power) signals a potential market top, while a bullish divergence (falling price but rising Bear Power) suggests a possible market bottom. Combine this with a 13-period EMA to confirm trend direction and improve accuracy.

What is the Elder Ray Index?

The Elder Ray Index is a technical indicator that measures the strength of buyers and sellers in the market. It consists of two components: Bull Power (the difference between the high and EMA) and Bear Power (the difference between the low and EMA). By analyzing these forces along with the price trend, traders can better predict market reversals.

How to Use Bull Power and Bear Power?

Bull Power shows how much strength buyers have by comparing the day's high with the EMA. Bear Power measures how much pressure sellers are applying by comparing the day's low with the EMA. When Bull Power is rising and Bear Power is weakening, it may indicate a bullish reversal. Conversely, if Bull Power declines while Bear Power increases, a bearish trend may be forming.

Identifying Market Tops with Elder Ray Index

To detect a market top, look for a situation where prices are rising but Bull Power is falling — this bearish divergence suggests buyers are losing strength. If Bear Power also begins to rise (becomes less negative), it reinforces the potential for a trend reversal from up to down.

Identifying Market Bottoms with Elder Ray Index

To find a potential market bottom, observe when prices are falling but Bear Power is weakening — this bullish divergence signals that sellers are losing momentum. A rise in Bull Power during this time can confirm the beginning of an upward reversal.

Best Timeframes to Use Elder Ray Index

The Elder Ray Index works on all timeframes, but it's most effective on daily or weekly charts for swing and position traders. Intraday traders can use it on shorter timeframes like 15 or 30 minutes, but with greater attention to noise and volume confirmation.

Combining Elder Ray with Moving Averages

The Elder Ray Index is most powerful when combined with a 13-period EMA. This moving average provides the trend direction, while the Bull and Bear Power components give insights into strength. Look for long trades only when the EMA is sloping upward and short trades when it’s sloping downward.