Any marketplace is made up of buyers and sellers. Buyers create demand for products and merchants offer to supply the products. Forex is not different. Forces of demand and supply dictate the price fluctuations in the Forex market. The terms “Bulls” and “Bears” are used to represent buyers and sellers, respectively. Bulls are always looking for the lowest entry price, while bears try as much as they can to sell their currencies at the highest price possible. The bull and bear power indicator was created by Alexander Elder to try and measure how successful the bulls and bears are in trying to achieve their objectives.
The Bears power indicator tries to establish the strengths of sellers in the financial market. It achieves this by finding the difference between the smallest price of a period and the Exponential Moving Average. It uses the Exponential Moving Average 13 by default, and it’s usually represented in the form of a histogram. The EMA is important since this indicator relies much more on the last data received. This technical tool has a zero line with an upper and lower limit. Bears are said to have the greatest control at the local minimum and are weakest at the maximum. So the strength of the bears is derived by analyzing how far below the bear power indicator goes below the zero line.
You are probably asking yourself how effective the Bears power indicator is in trading. Well, there is no perfect tool for Forex trading. Having said that, this indicator gives fairly accurate trading signals. First, it shows you when the bearish trend is about to come to an end, and second, it indicates the right time to get into a bullish trade. How does this happen? It’s pretty simple. When the Bears power crosses from the bottom up, above the zero line, we know that the bulls have taken control of the price. This is a good time to find buy signals. To avoid jumping in too early, wait for the indicator to come back near the zero line, then take your trade when it starts moving up again.
The bear power indicator is more effective on higher time frames, even though it will give sparse signals. Trading on lower time-frames like the 5 minutes charts calls for extra analysis to find adequate confluence before taking a position.
The Bulls power indicator shows the mood of the buyers in the market. It does this by finding the difference between the highest price and the EMA. The exponential moving average is preferred over the simple moving average because it spots a trend faster and more accurately.
The Bulls power oscillator indicator will be above the zero line if the difference between the highest price and EMA is positive. When the histogram is in the negative zone, it tells us that buyers have significantly lost strength. It is exactly the opposite of the Bears power indicator.
The best way to be profitable with the Bulls power indicator is to use it to find an early entry. So instead of waiting for the histogram to leave the positive zone for you to go short, you may want to find divergence. This is how hawk-eyed traders catch early entries with the Bulls power strategy. See the chart below.
Divergence occurs when the trend of the price and the histogram are moving in opposite directions. In the chart above, the histogram is clearly showing us that the bears are seriously undermining the bulls, but the price still seems to be going up. Prepare for a strong drop in price whenever you come across this market behaviour.
The EMA value is normally the first input for calculating Bears and Bulls power indicators. The EMA 13 is the most common value, as it was recommended by Alexander Elder when he created this strategy. The highest price of a candlestick shows the extent of bullish strength during that period, while the lowest price represents the extent of bearishness within that bar. So, comparing that to the EMA 13 is an effective way of calculating Bulls power and bears power strength.
Bulls Power= Highest Price of Bar- EMA
Bears Power= Lowest Price- EMA
Anyone can use bulls and bear power indicators mt4 because they are found in most trading platforms by default. You need to load them on your meta trader charts before using them, which is a very easy process:
- Go to the “insert” menu at the top left corner of your MT4
- Scroll down to indicators
- Select “Bulls power” and “Bear power”
- You’re ready to go
Remember these are two separate indicators, so you need to add each of them to your charts individually. You may also add the EMA 13 on your charts if you want to have a full set.
By now, you already have an idea how to take trades with bulls and bears indicators but let’s make it more clear for you. Trading with Bulls and Bears power is rather simple. First, it’s best to use these indicators with a 13 day exponential moving average as a baseline. Here is a breakdown of how to find buy and sell signals:
- The EMA is increasing
- Bears power rising from the negative zone
- Bears Power comes above zero
- Best time to find a buy trade
- The value of EMA is decreasing
- Positive bulls losing strength
- Bulls power crosses to the negative zone
- Best time to find a sell trade
Forex trading can be very exciting if you have a proper way of taking your entries. All investors want to make money, so it stops being fun when they make continuous losses one after another. Adopting Bulls power and Bears power indicators into your trading may help you improve your success rate as a trader; to catch more accurate entries and find confluence using fundamental and other technical analysis tools.