Trading is like a fight between bulls and bears. If you trade from the perspective of trying to get what you want, you would never recognize the moment of the magic. Furthermore, everything you attempt to do as a trader will be a struggle. You will always have to pick a side: bulls or bears? Bulls Power measures the capability of buyers in the market, to lift prices above an average consensus of value. Bears Power measures the capability of sellers, to drag prices below an average consensus of value.
Pocket Option platform offers the Bulls Power and Bears Power Indicators among the standard trading tools. They were developed by Alexander Elder who belived that his indicators can see below the surface of the market. The Bears Power indicator attempts to measure the market’s appetite for lower prices. The Bulls Power indicator attempts to measure the market’s appetite for higher prices.
Elder characterized that the market is a struggle between buyers, sellers, and the undecided. This momentary consensus can change at any time, of course, as undecided traders convert to buyers or sellers. Patterns of price movement describe the dynamics of the struggle between bulls and bears.
How to calculate indicators?
Bulls Power is designed to measure buying power. It helps to figure out how stable the up market:
Bulls P = High – EMA (13), where High is the maximum value of the current candle, and EMA is the value of the exponential moving average of the 13th period.
Accordingly, Bears Power measures the selling power:
Bears P = Low – EMA (13), where Low is the minimum value reached by the price within the current bar.
Both indicators relate are located in a separate window under the chart.
Traditionally, the Bull Power and Bear Power Indicators is a horizontal zero level and a signal line. Some traders in the Pocket Option terminal prefer to change it into a histogram, an area, points, and a direct moving. Traders can change the period and color of the line.
The recommended period is the EMA 13.
How to use Bears and Bulls Power indicators?
As mentioned above, Bulls Power and Bears Power determine the strength of the current trend and predict the reversal.
Accordingly, when there is an uptrend – the Bulls Power signal line moves up. Contrary, when there is a downtrend – Bears Power is heading down to zero.
Experienced traders know that divergence can serve as strong evidence of the upcoming reversal. As shown in the figure below, the Bull Power Indicator formed the next peak below the previous one. There is a breakout of the trend in the near future and is a strong signal to buy a PUT contract.
Often, traders combine these indicators with other tools: for example, the SMA and Bears Power can give a good signal to buy a CALL option. The signal is when the moving average goes up and the Bear power also moves up.
Traders are advice to execute a PUT contract when the SMA “looks” down, and the Bulls Power goes down too.
Thus, thanks to the indicators invented by A. Elder, it becomes possible to “measure” the strength of buyers and sellers.
Bears Power measures the capability of sellers, to drag prices below an average consensus of value. Using them in tandem with a measure of trend allows you to identify favorable entry points.
As a result, these data will help you not to make an erroneous purchase of a contract at the time of a trend reversal or attenuation. In addition, using Bulls Power and Bears Power in conjunction with other tools, you will be able to determine the optimal entry point into the market and get stable profit from trading options.
The Bulls Power and Bears Power help traders to decide whether bulls or bears are stronger, and then position the trade with the dominant force in the market.