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

About the Elder-Ray Index

The Elder-Ray Index was developed by renowned trading psychologist Dr. Alexander Elder. He described the market as a living organism illuminated by “rays of power.”
If you can perceive the difference between bullish and bearish strength, you can anticipate price reversals ahead of time.

Elder-Ray isn’t a single indicator, but a system composed of three parts:

• Bulls Power

• Bears Power

• A trend confirmation tool (usually the EMA)

In simple terms, it shows you:

• How far bulls can push prices upward;

• How far bears can push them down;

• And who currently dominates the market.

How the Elder-Ray Index Is Calculated

Let’s start with the basic formulas:

• Bulls Power = High – EMA

• Bears Power = Low – EMA

The EMA (Exponential Moving Average), typically 13 days (Dr. Elder’s default), represents the trend’s “centerline.” Bulls and bears power measure how far price deviates from that line.

✅ If Bulls Power > 0, bulls are strong—price is above trend.
✅ If Bears Power < 0, bears are strong—price is below trend.

How to Read the Elder-Ray Index

The real power of Elder-Ray lies not in its formula—but in its interpretation.

Its core value is that it reveals changes in market strength before they appear in price.
When sentiment weakens or capital flow begins shifting, Elder-Ray curves often show it earlier than candlesticks.
That’s why experienced traders call it a “trend thermometer”—to judge whether the market is “heating up” or “cooling down.”

1. Healthy Trend in a Bull Market

In a bullish environment, the ideal conditions are:

• EMA rising (uptrend confirmed)

• Bulls Power > 0 and staying elevated

• Bears Power still negative but narrowing

This means price remains above average, bulls are in control, and bears are losing influence—an indication of a healthy, sustainable uptrend.

Traders should follow the trend, not try to short prematurely. The smarter approach: buy dips or scale in gradually.

The “Bull Plateau” phase—when Bulls Power remains positive and stable—is often when energy for the next rally is building.

Pro Tip:
When Bulls Power stays positive but begins to decline while Bears Power doesn’t expand, it often signals slowing momentum—a possible consolidation or sideways phase ahead.

2. Top Reversal Signals

Market tops rarely form because price can’t go higher—but because bulls run out of power.
Elder-Ray’s strength lies in exposing that loss of energy early.

Typical reversal signs:

• EMA still rising, but slope flattening

• Bulls Power declines sharply or turns negative

• Bears Power begins to rise

This shows bulls are still trying to push prices, but their strength is fading.
When price makes a new high but Bulls Power fails to make a new high (a divergence), that’s a powerful reversal signal.

Skilled traders often:

• Gradually take profits,

• Wait for Bears Power to expand, or

• Exit when Bulls Power can no longer form a higher high.

This pattern appears frequently on BTC and ETH daily charts—a classic top signal.

Pro Tip: Beware of False Bullish Signals

• Sometimes Bulls Power dips briefly then recovers—this doesn’t always mean the trend is over.

• Confirm with EMA direction: once the EMA curves downward, the trend is truly broken.

3. Sustained Decline in a Bear Market

Bear markets typically show:

• Downward-sloping EMA

• Bears Power negative and widening

• Bulls Power occasionally positive, but weak

This is an inertia-driven downtrend: bearish force dominates, and every bullish rebound is quickly sold off.

Elder-Ray helps you visualize when bears still haven’t exited the field.
When Bears Power keeps plunging like a waterfall, any bounce is likely just a temporary breath.

For mid- to short-term traders, this is the best time for trend-following:

• EMA down + Bears Power expanding → bearish continuation signal

• Bulls Power fails to turn positive on rebounds → reduce positions or short at highs

Pro Tip:
Elder-Ray won’t tell you where the decline will end—it tells you bears aren’t done yet.
Use volume and candlestick confirmation for bottoming signals.

4. Bottom Reversal Signals

Bottom reversals are where Elder-Ray shines the most. True bottoms often occur when:

• EMA is falling but starting to flatten;

• Bears Power rises steadily (bearish strength fading);

• Bulls Power crosses from negative to positive.

This means bears have lost their ability to push prices lower, and bulls are preparing for a comeback.

When Bears Power hits a new low and then rebounds while Bulls Power rises simultaneously, that’s a flashing bottom signal.
Smart traders don’t go all-in immediately—they build positions gradually and add after trend confirmation.

Who Should Use the Elder-Ray Index?

Best suited for:

• Medium- and short-term trend followers
• Swing traders looking for reversal points
• Traders who prefer intuitive “power visuals” over complex math

Less suited for:

• High-frequency or ultra-short-term traders (signals too slow)
• Extreme choppy markets (risk of false breakouts)

Conclusion: Power Comes Before Price

Dr. Elder’s philosophy is simple:“Price tells you what happened. Power tells you what will happen next.”The Elder-Ray Index is the tool that lets you “hear the wind before the storm.”When Bulls Power and Bears Power begin to shift, the energy source of the trend is already changing.It doesn’t predict the future—but it does tell you who’s still in the game, and who’s stepping off the field.