How to Use the Elder Ray Indicator? Bull/Bear Power and Misreadings

Trading Strategies

13 October 2026

The Elder Ray consists of two histogram lines that fluctuate around a zero line: Bull Power and Bear Power. They both use a 13-period EMA as their baseline. When judging bull and bear power, you cannot just look at whether the bars are above or below the zero line. Direction is more easily misread than position—a Bear Power bar that is below zero but rising, and a Bull Power bar that is above zero but falling, are the states where this indicator actually carries the most information.

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What the two lines are calculating

The formula is very straightforward. First, calculate the 13-period EMA of the closing price. This serves as the "market consensus value."

Bull Power = Current Bar High − EMA

Bear Power = Current Bar Low − EMA

Both results are displayed in price units, usually drawn as a histogram.

This means: A positive Bull Power indicates that the current bar's high pushed above the EMA. The larger the value, the stronger the force with which buyers are pushing the price away from the consensus value. A negative Bear Power indicates that the low was driven below the EMA. The smaller the value (the more negative), the stronger the force with which sellers are pressing the price away from consensus.

The zero line here represents the EMA itself. When the price is running above the EMA, Bull Power is usually positive; when the price is running below the EMA, Bear Power is usually negative. When an entire bar's range is above the EMA, even Bear Power can become a positive number.

Direction matters more than position: two typical misreadings

Misreading 1: Seeing negative Bear Power and assuming bears are still strong. If Bear Power recovers from -500 to -100, it is still negative. The low is still below the EMA, but the sellers' control is weakening. Elder's original usage treats this "negative but rising" Bear Power as a potential buying opportunity in an uptrend.

Misreading 2: Seeing positive Bull Power and assuming bulls are still strong. If Bull Power falls from +500 to +100, the high is still above the EMA, but the buyers' driving force is fading. In a downtrend, "positive but falling" Bull Power is considered by Elder as a potential short-selling signal.

There is also a more extreme situation: in a strong one-sided rally, Bear Power can turn positive—because the day's low is higher than the EMA. In this case, seeing Bear Power as "positive" and thinking it is time to short is a directional misreading. When Bear Power turns positive, it means sellers in this period have almost no ability to pull the price back near the moving average.

Zero line crossover: the boundary of control shifts

Bull Power crosses above the zero line: The high changes from being below the EMA to above the EMA. Buyers are starting to be able to push the price above consensus. StockSharp's documentation describes the zero line crossover of Bull Power or Bear Power as a "shift in market control."

Bear Power crosses below the zero line: The low changes from being above the EMA to below the EMA. Sellers are starting to be able to press the price below consensus.

The zero line crossover signal itself is quite noisy, especially on small timeframe charts. TA-Lib's documentation specifically warns that Elder Ray involves the problem of "relatively amplified small EMA differences" near the zero line, making the reliability of crossovers limited. A more robust approach is to look at the zero line crossover together with the EMA's slope: an upward EMA + Bear Power recovering from negative values is more informative than a zero line crossover alone.

How to read it in conjunction with the trend

Elder Ray was originally designed to be used with the trend, not as a standalone signal source. The core logic has two steps:

First, look at the EMA slope to determine direction. If the EMA is pointing up, the market consensus is rising, so prioritize looking for long opportunities. If the EMA is pointing down, prioritize looking for short opportunities.

Then, look at the direction of the two histogram lines to determine timing. When the EMA is pointing up, if Bear Power is negative but rising, it means selling pressure is weakening and buyers may regain control. When the EMA is pointing down, if Bull Power is positive but falling, it means buying interest is fading and sellers may regain control.

Elder's framework in Trading for a Living is: in an uptrend, wait for Bear Power to fall into negative territory and then show an "upward hook"; in a downtrend, wait for Bull Power to rise into positive territory and then show a "downward hook." This "waiting" is to avoid chasing highs or lows—Bear Power has already fallen to negative values, meaning the price has pulled back to the moving average, allowing you to buy at a relatively valuable position rather than chasing the price when it is far away from the moving average.

Divergence: a signal more worth watching than zero line crossovers

One of the most commonly cited uses of Elder Ray is divergence. It occurs when the price trend and the direction of the power bars do not match:

Bullish divergence: Price makes a lower low, but Bear Power's low is higher than the previous low (negative values narrowing). This shows that although the price is still falling, sellers can no longer push it down as hard.

Bearish divergence: Price makes a higher high, but Bull Power's high is lower than the previous high (positive values narrowing). This shows that although the price is still rising, buyers can no longer push it up as hard.

When divergence appears at the end of a trend, it is a warning signal. However, like all divergences, it does not tell you when the reversal will come, only that the current driving force is fading.

What to pay attention to in actual use

Period selection. Elder's original setting uses a 13-period EMA. On a daily chart, that is 13 days; on an hourly chart, it is 13 hours. The shorter the period, the more volatile the two histogram lines become, the more frequent the zero line crossovers, and the worse the signal quality. If you are using a 1-minute or 5-minute chart, Elder Ray readings have essentially no reference value.

Looking at the two histogram lines alone is not enough. You need the EMA on the chart at the same time to know the current trend direction. Both StockSharp and Investopedia list the EMA as a component of Elder Ray, not an optional accessory.

Do not use it to pick tops and bottoms. The value of Elder Ray is in telling you which direction the balance of power between buyers and sellers is shifting, not in telling you where the price will go. Bear Power being negative but rising means "selling pressure is weakening," not "the price is about to go up."

Readings can be distorted in one-sided markets. In a strong rally, Bear Power can stay positive for a long time; in a strong decline, Bull Power can stay negative for a long time. These extreme readings reflect the strength of the current trend, not a reversal signal. Using zero line crossovers to make counter-trend trades can repeatedly get you stopped out in one-sided markets.

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