Most oscillators try to answer one question: is the market overbought or oversold? The Elder Ray Index asks a better one — who is actually winning each bar, and are they getting stronger or weaker?
Dr. Alexander Elder introduced it in Trading for a Living (1993), and the name is deliberate: like an X-ray, it is meant to show you the skeleton underneath the price action. It does that with two of the simplest calculations in technical analysis.
The formula
Elder Ray has two components, both measured against a moving average that represents the market's "consensus of value" — Elder's default is a 13-period EMA of the close:
That is the whole indicator. They are usually plotted as two histograms beneath the chart.
The reasoning behind it is worth understanding, because it is what separates Elder Ray from a generic momentum tool. The EMA is the average price traders agreed on recently. The high of a bar is the furthest the bulls could push price above that consensus before sellers stopped them — so Bull Power measures the maximum strength buyers could muster. The low is the furthest the bears could drive price below consensus — so Bear Power measures the maximum strength sellers could muster.
In other words, you are not measuring the outcome of the fight. You are measuring how hard each side could actually punch.
Reading the two histograms
Under normal conditions the readings behave predictably:
The most useful information is not the level, though. It is the direction of change. Bear Power at -40 is not inherently bearish; Bear Power that has risen from -80 to -40 tells you sellers are losing the ability to push price down, which is exactly the kind of information that precedes a turn.
The classic Elder Ray setups
Elder never intended this as a standalone system. He used it as the second screen in his triple screen method: a longer timeframe defines the trend, and Elder Ray times the entry within it.
Buy setup (in an established uptrend):
Sell setup (in an established downtrend):
Those divergences are where the indicator earns its keep. A market making new highs while Bull Power makes lower highs is a market where each new high is being achieved with less buying force than the last — a rally running on fumes.
What to watch out for
Practical settings
The 13-period EMA is Elder's original and remains a sensible default across timeframes. Shortening it (8–10) makes the histograms more responsive and noisier; lengthening it (21–26) produces smoother readings that suit swing trading on daily charts. If you change the EMA, change it in your trend filter too — otherwise the two screens are measuring different definitions of "value" and will contradict each other for structural reasons rather than market ones.
The bottom line
Elder Ray is a two-line answer to a question most indicators skip: not "how far has price gone," but "how much force is behind it, and is that force building or fading." Used as a timing layer inside a trend you have already identified — and read for direction of change rather than absolute level — it is one of the more honest tools on the list. Used alone, on any market, in any direction, it will do exactly what every oscillator does when stripped of context: generate signals that look excellent in hindsight and lose money in real time.
Dr. Alexander Elder introduced it in Trading for a Living (1993), and the name is deliberate: like an X-ray, it is meant to show you the skeleton underneath the price action. It does that with two of the simplest calculations in technical analysis.
The formula
Elder Ray has two components, both measured against a moving average that represents the market's "consensus of value" — Elder's default is a 13-period EMA of the close:
- Bull Power = High – EMA(13)
- Bear Power = Low – EMA(13)
That is the whole indicator. They are usually plotted as two histograms beneath the chart.
The reasoning behind it is worth understanding, because it is what separates Elder Ray from a generic momentum tool. The EMA is the average price traders agreed on recently. The high of a bar is the furthest the bulls could push price above that consensus before sellers stopped them — so Bull Power measures the maximum strength buyers could muster. The low is the furthest the bears could drive price below consensus — so Bear Power measures the maximum strength sellers could muster.
In other words, you are not measuring the outcome of the fight. You are measuring how hard each side could actually punch.
Reading the two histograms
Under normal conditions the readings behave predictably:
- In an uptrend, Bull Power is positive (buyers push above value) and Bear Power is negative but rising toward zero.
- In a downtrend, Bear Power is negative and deepening, while Bull Power is positive but shrinking.
- Bear Power turning positive means even the bar's low stayed above the moving average — that is an unusually strong market, often an overextended one.
- Bull Power turning negative means even the bar's high failed to reach value — an unusually weak market.
The most useful information is not the level, though. It is the direction of change. Bear Power at -40 is not inherently bearish; Bear Power that has risen from -80 to -40 tells you sellers are losing the ability to push price down, which is exactly the kind of information that precedes a turn.
The classic Elder Ray setups
Elder never intended this as a standalone system. He used it as the second screen in his triple screen method: a longer timeframe defines the trend, and Elder Ray times the entry within it.
Buy setup (in an established uptrend):
- The trend filter is bullish — typically the 13-EMA rising, or a weekly indicator pointing up.
- Bear Power is negative but rising. This is the key condition. You want sellers to still be present (negative), but weakening (rising). If Bear Power is positive there is no pullback to buy — you would be chasing.
- Bonus confirmation: the most recent Bear Power trough is higher than the previous one — a bullish divergence against price making a lower low.
Sell setup (in an established downtrend):
- The trend filter is bearish.
- Bull Power is positive but falling — buyers still show up, but with progressively less force.
- Bonus confirmation: a bearish divergence, with Bull Power peaks declining while price makes higher highs.
Those divergences are where the indicator earns its keep. A market making new highs while Bull Power makes lower highs is a market where each new high is being achieved with less buying force than the last — a rally running on fumes.
What to watch out for
- It is not a standalone signal generator. Bear Power rising in a downtrend happens constantly during ordinary pullbacks. Without a trend filter you will buy every bounce in a bear market.
- The values are not normalised. Unlike RSI or Stochastics, Elder Ray is measured in price units, so readings are not comparable across instruments — or even across time on the same instrument as volatility changes. There is no universal "extreme" level; you have to read it relative to that market's own recent range.
- It inherits the EMA's lag. Both components are anchored to a moving average, so in a sharp reversal the reference line itself is stale for several bars.
- Gappy markets distort it. On instruments that gap heavily, the high and low can sit far from the EMA for reasons that have nothing to do with intrabar strength.
Practical settings
The 13-period EMA is Elder's original and remains a sensible default across timeframes. Shortening it (8–10) makes the histograms more responsive and noisier; lengthening it (21–26) produces smoother readings that suit swing trading on daily charts. If you change the EMA, change it in your trend filter too — otherwise the two screens are measuring different definitions of "value" and will contradict each other for structural reasons rather than market ones.
The bottom line
Elder Ray is a two-line answer to a question most indicators skip: not "how far has price gone," but "how much force is behind it, and is that force building or fading." Used as a timing layer inside a trend you have already identified — and read for direction of change rather than absolute level — it is one of the more honest tools on the list. Used alone, on any market, in any direction, it will do exactly what every oscillator does when stripped of context: generate signals that look excellent in hindsight and lose money in real time.