Understanding Bears Power: A Key Indicator for MetaTrader 5

When it comes to trading, it's all about the tug-of-war between buyers, or 'Bulls,' pushing prices higher, and sellers, or 'Bears,' driving prices down. The outcome of this daily battle determines whether we see a price increase or decrease compared to the previous day. By examining key metrics, like the highest and lowest prices, we can get a sense of how the day's skirmish unfolded.

One crucial aspect to keep an eye on is the balance of Bears Power. Changes in this balance can signal potential trend reversals, which is where the Bears Power oscillator, crafted by Alexander Elder, comes into play. You can find more about it in his book, "Trading for a Living: Psychology, Trading Tactics, Money Management". Elder's oscillator is based on two key premises:

• The moving average reflects the price equilibrium between buyers and sellers over a certain period.
• The lowest price during the day indicates the peak power of sellers.

Using these foundations, Elder developed the Bears Power indicator, calculated as the difference between the lowest price and the 13-period exponential moving average (LOW - EMA).

How to Use Bears Power:

For best results, pair this indicator with a trend indicator, typically a Moving Average. Here’s how to interpret it:

• If the trend indicator is pointing upwards and the Bears Power index is below zero but increasing, consider it a buy signal.
• Ideally, look for divergence forming in the indicator chart during this setup.

Calculation:

The first step in calculating this indicator is to determine the exponential moving average, with the 13-period EMA generally being recommended.

Where:

• BEARS - Bears' Power;
• LOW - The lowest price of the current bar;
• EMA - Exponential Moving Average.

During a downtrend, the LOW will be below the EMA, resulting in a Bears Power reading below zero and a histogram positioned under the zero line. Conversely, if the LOW surpasses the EMA during a price rally, the Bears Power turns positive, and the histogram climbs above the zero line.