What is the Bears Power indicator?
The trading participants in the market are the buyers, struggling to rise prices, and the sellers, struggling to lower prices. In this case, depending on which side scores off, at the end of the market session the price will end higher of lower than the price of the previous session. Intermediate results, related to the highest and lowest prices in any moment at the day, allows to establish about how the battle between buyers and sellers was developing.
For this reason, is important to be able to estimate the Bears (sellers) balance, as a change in this balance could mean a possible change in market trend, which offer important opportunities to trade. This task can be solved using a technical analysis indicator known as Bears Power which is basically an oscillator. This tool allows to identify if the sellers in the market are weaker than buyers, and if so, then look for long positions to caught a trend change. The creator of this indicator was the Dr. Alexander Elder, a famous stock trader who is living in New York. Basically, the Bears Power indicator is the difference between the close price and the exponential moving average. It is used as a reflection of the selling power in the market at any given time.
The basic formula for calculating the Bears Power is the following:
- The minimum price in any period, indicates the maximum power of the sellers for that period.
- The moving average can be seen as a price agreement between buyers and sellers for a certain period of time.
Note that when the market is in a down trend, the minimum is under the EMA, so the Bears Power is below 0 and its corresponding histogram is below the zero line in the chart. In case the minimum rises above the EMA when prices are raising, the Bears Power becomes above zero and its corresponding histogram is above the zero line in the chart
The Bears Power indicator assesses balance of sellers as well as indicates the possible trend change. Alexander Elder developed this indicator totally based on the difference between the minimal L price (the lowest price) and the 13-period EMA. This indicator is generally used with different trend indicators such as moving averages. For example, the buy signal appears when the trend indicator is going up and the bears power is under zero are growing.
Trading signals with the Bear Power
- If the moving average is rising and the Bears Power index is below zero, but at the same time growing, that it is a clear Buy signal.