Every day in the market, bulls and bears fight to get the price where they want it. Bulls try to push the price up while bears try to pull it down. Bulls Power indicator is calculated by subtracting an exponential moving average of the closing prices from the high price. This oscillator was developed by Dr. Alexander Elder.
The oscillator measures the amount of power bulls have. If the bulls power is high, it means that bulls have a significant amount of power, which they will use to push prices up. Likewise, the Bears Power oscillator indicates how much power bears have to pull the prices down, to suit their own agenda. When the two indicators are combined, they form the Elder-Ray index.
The moving average mentioned earlier is usually a 13-day moving average and it acts as a baseline. You’ll know that you might make a profit if you buy, if you notice that the EMA is going up. If the last peak of the Bulls Power oscillator indicator is higher than the previous one, that’s also a good buy signal.
If the Bulls Power is positive but it’s started to decrease, it’s a good time to consider selling. You should also consider selling if you observe a gradual drop in the EMA. Bulls Power indicator allows you to distinguish the forces that are driving market behavior and make good decisions about buying or selling.
Calculating Bulls Power Indicator
In the calculations below, the following symbols are used:
- BULLS = Bulls Power;
- HIGH = the highest price attained by the current bar
- EMA = exponential moving average
BULLS = HIGH – EMA
It’s best to use a 13-period BMA in your calculations. You’ll notice that before you can calculate the BULLS, you’ll need to find the EPA.
The histogram is located above the zero line during an uptrend because HIGH is higher than EMA, When HIGH falls below EMA, it signals that there is a downtrend. Since prices are falling, the Bulls Power indicator goes below zero and so does the histogram.