LEARN ELDER-RAY INDEX IN 3 MINUTES ——BLOCKCHAIN 101

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Today’s topic is the Elder-Ray indicator. It’s a technical indicator that helps us see the market’s bull–bear forces. A simple example: remember arm-wrestling with friends as a kid? On one side is a “super-strong” chubby kid; on the other, an “agile” athlete. When both exert force, you can tell which side has the upper hand.

In financial markets, this “arm-wrestling contest” plays out every day—the protagonists are bulls (buyers) and bears (sellers).

The Elder-Ray Indicator (Elder-Ray Index, abbreviated ERI) is the tool that helps us see this struggle clearly. Proposed by the renowned trading expert Dr. Alexander Elder in 1989, it is essentially an indicator that measures the relative strength of bulls versus bears.

Bull Power: represents bullish strength.
Bear Power: represents bearish strength.

Dr. Elder vividly likened it to an “X-ray” that penetrates the surface of price to reveal the true balance of forces in the market. In other words: Elder-Ray = a bull–bear power scanner.

The Elder-Ray formulas are not complicated:

Bull Power = High − EMA(13)
Bear Power = Low − EMA(13)

Where:

EMA(13) is the 13-day exponential moving average, representing the market’s “fair price” or equilibrium point.
High/Low represent the extremes probed by bull and bear forces.

Simply put:

If Bull Power > 0, bulls have pushed price above the EMA.
If Bear Power < 0, bears have pressed price below the EMA.

It’s like a tug-of-war—you can instantly see which side is pulling the rope farther to its side.

How do you use Elder-Ray to read the market?

Many beginners feel confused the first time they see the Elder-Ray Indicator (ERI): “How do I actually use this? What do all these positive and negative numbers mean?” Don’t worry—let’s go step by step. Dr. Elder provided a very clear framework: identify the trend first, then assess the forces. It’s like warfare—first determine who controls the battlefield (trend), then compare troop strength (forces).

1. Trend following + force confirmation

Elder-Ray is essentially used together with the EMA. The EMA is the “compass” for trend; ERI is the “microscope” for force.

Scenario 1: Uptrend + Bull Power > 0

When price is steadily above the EMA and Bull Power is positive, it means bulls are indeed pushing the move higher. Following the trend to buy is more reliable. For example: suppose ETH is oscillating above its 13-day EMA while Bull Power shows +150—buying interest is strong. The rise is not hollow; real money is supporting it.

Scenario 2: Downtrend + Bear Power < 0

If price is below the EMA and Bear Power is negative, bears dominate the field and are pressing harder. Shorting with the trend is usually safer. For instance, BTC breaks below the 13-day EMA and trends down, with Bear Power at −300. Trying to bottom-fish here is likely “catching a falling knife.”

In one sentence: trade with the trend—ERI helps you avoid fighting it.

2. Finding potential turning points

Elder-Ray can not only confirm trend, but also sniff out inflection points in advance.

A. Bullish exhaustion signal

When Bull Power keeps falling and even drops below zero, it’s like the bull side’s arm being pushed down—buying strength is insufficient. Even if the EMA hasn’t turned down yet, be alert to a potential top.

B. Bearish exhaustion signal

When Bear Power stops making new lows and narrows or even turns positive, selling pressure is weakening. The market may be preparing for a rebound.

C. A crypto-market example:

In May 2021, Bitcoin topped around US$60,000. Bull Power had been sliding for weeks; the EMA was still rising, but ERI had already flashed “bullish fatigue.” Many cautious traders reduced positions then and avoided the ensuing plunge.

3. Aiding assessment of market health

Dr. Elder emphasized that price up ≠ healthy up.

If price rises but Bull Power does not strengthen significantly, it may be a “weak rally”—e.g., a operator-driven push with few followers.
If price falls but Bear Power is narrowing, the decline may lack persistence—potentially hinting at opportunity.

It’s like a health check:

Weight gain isn’t necessarily good—it might be water retention.
Weight loss isn’t necessarily bad—it might be healthy fat loss.
ERI helps you judge whether a move is “muscle” or “water weight.”

4. Practical usage in the crypto market

Crypto differs from stocks/FX mainly by greater volatility and more extreme sentiment—making Elder-Ray even more useful.

A. Capturing trending moves

Early in a bull market, when BTC gets above the EMA and Bull Power stays positive, that’s often a prime trend-following entry.

B. Avoiding false breakouts

Altcoins often “spike and fade.” If Bull Power doesn’t rise in step, beware of a bull trap.

C. Bottom-fishing aid

When Bear Power has been negative for a long time and then quickly narrows or turns positive, it often signals bear energy exhaustion. Combined with rising volume, this can be a decent bottom-fishing window.

Using it alongside other indicators

ERI works best as a validation tool. Common combinations:

ERI + MACD: use MACD for trend turns; ERI to confirm bull–bear force.
ERI + Volume: on price rises, Bull Power should be accompanied by expanding volume for a more reliable signal.
ERI + RSI: when RSI shows oversold and Bear Power is narrowing, bottom signals strengthen.

Summary

In practice, Elder-Ray follows this logic:

Look at trend (EMA) first, then force (ERI).
Strong Bull Power → going long with the trend is steadier.
Strong Bear Power → shorting with the trend carries less risk.
Narrowing forces → potential inflection signal.
Combine with other indicators to filter false signals.

If the market is a battle:

EMA is the “battlefield situation map,” telling you whether to attack or defend;
ERI is the “combat-power detector,” showing whose punch is harder.

Combine both, and in the fast-changing crypto market, you’ll be far less likely to follow the crowd blindly.