Introduction to the Elder Ray Index
In 1989, Dr Alexander Elder has developed a technical indicator that is now known as the Elder Ray Index because it was invented to scan the market in the manner of an X-ray device. Its main purpose is to measure the selling and buying pressure in the market. It is a trend following indicator that can help traders to find the points of entry and exit for their trades.
To use the Elder Ray Index you must first add it to the chart. Log in to your IQ Option trading account, choose the asset and the chart timeframe. Then, click on the Indicators icon. You will see a list of the indicators categories. Select ‘Other' and another list will unfold. The Elder Ray Index should be in there. Click on its name and it will be added to your chart.
How the Elder Ray Index looks like
Dr Elder's tool is composed of two indicators. One is named the Bear Power and the other one is the Bull Power. The Bear Power is in the form of red bars and the Bull Power is represented by green bars. They develop around the middle line with the value of 0. The indicator's default period is set at 13.
You can see the Elder Ray Index in the form of a histogram beneath the price chart of the instrument you have chosen.
Using the Elder Ray Index in trading on IQ Option
It is very common to use the Exponential Moving Average together with the Elder Ray Index. The EMA is used as a confirmation of the direction of the trend.
Opening a position for the price decrease
There are a few conditions that have to be met in order to open a short position. First, the EMA should move downwards which indicates the downtrend in the market. Second, the Bull Power is visible above the middle line, in positive territory, and is diminishing (bulls are getting weaker). And lastly, the Bear Power is falling.
Opening a trading position for the price increase
In order to open a long trade, you are waiting for the uptrend in the market which may be confirmed by rising EMA. The second condition is that Bull Power's latest peak is higher than the previous one, which means the bulls are getting stronger. Lastly, the Bear Power is located in negative territory and rising, which means it is getting weaker.
The Elder Ray Index measures the buying and selling pressure in the market. It offers trading signals confirmed by the sloping Exponential Moving Average. The Elder Ray Index consists of two indicators the Bull and the Bear Power. The trading positions can be entered when divergences between the Bull or Bear Power and the prices are spotted. Long trades are welcomed when the Bear Power's values are below 0 but rising. A short position may be opened when the Bull Power is positive in value but falling.
The indicator is usually based on a 13-day EMA, although you may experiment with different values. For instance, Elder himself was using a 26-day EMA with weekly charts.
Using a moving average in its calculations makes the Elder Ray Index a lagging indicator. It means it may produce trading signals with some delay. Bear it in mind and utilise extra analysis tools.
It is always a good idea to check new indicators in the demo account offered by IQ Option for its users completely for free. After some practice, you will know the indicator well and be ready to invest real money in the live account.
Wish you high profits!
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