Bulls and Bears Power
«Bulls Power» and «Bears Power» indicators show how the balance of traders` power plays on the rise and fall.
A cycle in the financial world is volatile. Each price moves to its maximum and then to the minimum. Traders of two direction groups are usually called bears and bulls. Bears move the price down, and bulls move it up. The graph in the trading terminal is the result of a confrontation between the bulls and the bears. To make a visual demonstration and show who dominates while the price moves up and down, the trading indicators were invented and successfully applied. In this case, we are talking about the Bulls and Bears Power indicator.
More on the Bulls and Bears Power indicator
Alexander Elder developed this indicator. It is used in stock markets.
Two indicators are somehow opposed to each other but also somehow united into one.
The Bulls Power indicator
This indicator demonstrates the strength of the buyers (bulls) in the market. If the force is on the side of the bulls, there is an uptrend on the graph, and on the contrary. If the Bears get better, the bulls' asset will decrease until establishing the balance.
The use of this indicator makes it possible to see changes in the trend, even the smallest one. As a consequence, it became feasible to predict the change dynamics in the future.
The indicator is based on the moving average: a symbol that represents the balance between the bulls and the bears for a particular time. The price peak is another necessary parameter that allows you to learn the power of customers over a complete period.
This indicator works like this. We take some period. And the moving average is subtracted from the maximum price in this time interval. The figure obtained is the indicator of the balance deviation for the time given. It can be noted for the visibility on the graph. Above the zero mark, it's the upward move. Below that mark the buyers (bulls) are weakening, the bears (sellers) are getting stronger.
The algorithms-histograms are separated from the graph. Zero mark is in the center. The situation in the market determines the histogram location, above or below the zero mark. The indicator can be adjusted. For example, the digital value of the moving average. Or the color of the indicator can also be made different.
The Bears Power Indicator
The Bears Power indicator is opposed to the Bull Power. The primary task of this indicator is to record the moments of price divergence from the moving average, as well as to identify imbalances.
Here again, there is a period. And the minimum price is fixed in this period, as well as the moving average. Then the moving average is subtracted from the minimum price. The obtained data is on the graph. The sellers (bears) lose their power with indications above the zero mark. The value below the zero mark is a downward trend.
Where and why these two indicators are applied
These two instruments of technical market analysis are needed as an auxiliary tool for the primary stock instruments. Algorithms of trend indicators are checked against the Bulls Power and the Bears Power indicators. The use of the moving average will give a general market trend anyway.
For example, the moving average goes up, and the Bulls Power indicator is also above the zero mark. It is a sign of an upward trend. It is preferable to open long positions.
Another example. The moving average has gone down, and the Bulls Power indicator doesn't move up, so the trend is changing. Applying for short positions is logical.
The moving average is at the bottom; the Bears Power indicator is also below the zero mark - this means the downward market trend. If the moving average goes up, and the Bears Power indicator stops going down, it means that an upward trend begins.
Everything seems to be simple. But the preceding means the particular state of the market at a certain moment. And to see greater dynamics, strategies are applied. They are different.
The best strategy is considered to have a period of 34 in the moving average. It's a universal approach, that is useful in any market. For the Bear Power period is determined at 68, and for the Bull Power – at 164. The time scale is 1 hour:
- If the price crosses the moving average from the bottom up, then you can open an extended position;
- If the price crosses the moving average from top to bottom, then you can open a short position.
You can apply a "trailing stop." It will reduce the risk of shortfalls in profits, and help to improve results. Stop orders are better to expose with a margin below, so that price fluctuations couldn't "hook it up."
The Bulls and Bears Power indicator can also be used for the divergence - to determinate the divergence between the price and the algorithm performance. It is a rare signal, but it's strong.
Bullish divergence - this happens when the columns on the Bear Power grow below the zero mark, and the price continues to decline. That means the indicator outdrives the price, and soon the ascent begins.
The bearish divergence occurs when the Bull Power indicator is above the zero mark, then it decreases, and the price rises. So there will be a turn downwards soon.
Advantages and disadvantages of the Bulls and Bears Power indicators
These indicators are good for their simplicity; you can quickly calculate them and see the situation on the market. They are universal. Good for trading stocks, but you can also work with them on Forex and commodity exchanges. They are simple for understanding and clear.
The disadvantage of these indicators is their lack of autonomy. Without a moving average, they are problematic to use. Another drawback: divergence is a strong signal, but it's not worked out in time with these indicators.
The strength of the indicators, their undoubted benefits for all those financial exchange participants, is undeniable. Therefore, whenever possible, use these powerful financial tools - the Bulls and Bears Power indicators, along with the other instruments.