Alexander Elder was the one who invented the Elder Impulse System. His system consists of two indicators, one follows the trend and the other measures a momentum. Elder says that his method helps to discover the points where the trend accelerates or slows down. Today, I will describe the Elder Impulse System in details.
What is the Elder Impulse System?
The Elder Impulse System is constructed on two indicators. The first one is a 13-day EMA (Exponential Moving Average) and it helps to determine the trend. The second one is the MACD-Histogram. It measures the momentum of the trend. The combination of these two gives the trade entry signals.
The indicator is coded in the colour of the price bars. You will then see the green price bars and the red ones. Additionally, you will find the grey ones. They will appear when the required conditions for red or green price bars are not fulfilled.
Green price bars develop when both indicators of the Elder Impulse System are growing. Such a situation indicates bulls dominance. It occurs when (13-period EMA > former EMA13) and (MACD-Histogram > former period's MACD-Histogram).
Red price bars appear when the EMA and MACD-Histogram are descending. This means the dominance of the bears on the market. (EMA13 < former EMA13) and (MACD-Histogram < former period's MACD-Histogram).
Grey price bars are showing there is no dominance on either side.
The timeframes choice
You can choose various timeframes, but it just should follow a larger trend. What Elder suggests, is to set the timeframe you like and name it as an intermediate timeframe. To receive a long-term timeframe, you should multiply your intermediate timeframe by five.
- If you are using a weekly chart, you can choose a monthly chart for a long-term timeframe.
- If you are using a daily chart, you can work on a weekly chart for a long-term timeframe.
- If you are using a 10-minute chart, you can choose a 60-minute chart for a long-term timeframe.
You see, the timeframe does not have to be strictly five times larger. Sometimes you just have to rely on your judgment and choose the timeframe accordingly. Then, you can start using long-term timeframe to discover a bigger trend.
Another thing you can do is to work on one chart. To do that, you will have to add the Exponential Moving Average to the chart. This EMA should be 5 times larger than the EMA in the Elder Impulse System (EMA13). This leaves you with the EMA65. With this method, you can identify the long-term trend when the closing price is above or below the EMA65.
Using the Elder Impulse System on IQ Option
Opening a CALL option
First, you need to check the EMA65. For the uptrend to be confirmed, a candle has to close above it. Once a long-term trend is verified, you are only waiting for a green price bar to appear in the Elder Impulse System window. When the next candle begins to develop, you enter the trade. With a 5-minute chart, you can open a position for a duration of 3 candles that is for 15 minutes.
Opening a PUT option
First, you have to confirm a downtrend. To do this, you watch the EMA65 and wait when the price closes below it. Then, you look at the colours of the price bars on the Elder Impulse System graph. Once it is red, you can open a Put option. The duration will depend on the timeframe you are using. In our example, we were using 5-minute candles so I opened transactions lasting 15 minutes.
According to Elder, his system allows capturing quite short price changes. He recommends entering the trade slowly, with care, but exiting quick and safe.
In fact, this is a common mistake made by beginners. They jump into the market without careful analysis and then hold their positions for a long time in hope for the price to move in their favour.
The Elder Impulse System is used to confirm the trading setups. Thanks to this additional verification you can avoid some wrong entries.
I invite you to start using the Elder Impulse System on the IQ Option demo account. You can get to know indicator well there.
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