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Technical Indicators
Mastering the Elder Ray – The Ultimate Buy The Dip Indicator
Last Updated on May 5, 2023 by Mark Ursell
The Elder Ray technical indicator was created by Dr. Alexander Elder.
Buy the dip has been one of the easiest and most profitable trading styles over the past decade of rising stock prices. The Elder Ray is vital to this – it tells you when to buy into a trend and when to stand aside.
This article tells you this powerful indicator’s purpose and how to calculate the Elder Ray in Excel.
What is the Elder Ray?
“A moving average represents the consesus of value. The high of each bar represents the maximum power of bulls during that bar. The low of each bar represents the maximum power of bears during that bar”
Alexander Elder – Come Into My Trading Room
Dr Elder’s book Come Into My Trading Room is a classic and I encourage all aspiring traders to read his words of wisdom.
The Elder Ray comprises two parts:
- Bull Power and
- Bear Power.
Bull Power measures whether the high is above or below the EMA. Bear Power measures whether the low is above or below the EMA.
What Is The Purpose of the Elder Ray?
The purpose of the indicator is to encourage and reward patient trading. Using the indicator requires identifying the main trend and waiting for the price to pull back enough to obtain a fair value entry into the trade.
How to Use the Elder Ray Indicator
The Elder Ray is a good entry timing indicator. Trading using the Elder Ray forces you to identify the main trend and then wait for the price to pull back far enough to trigger an entry. If you want to enter a new long trade, you will wait for Bull Power to move below the 0 line and then move back above. Likewise, if you want to trade short, you must wait for Bull Power to move above the 0 line and then move back below.
In the above image, the SPY was in a sustained uptrend in 2021. I am demonstrating using the Elder Ray to wait until bull power is negative. You get great value entry points into this strong trend by being patient and waiting for these entries.
YouTube Video
How to Calculate the Elder Ray in Excel
How to Calculate the Elder Ray in Excel
Total Time: 5 minutes
Get Your Price Data and Calculate an EMA
The Elder Ray traditionally starts with a 13 period EMA. Calculate the first step using the built-in Average() function. In Cell H15 enter =Average(F4:F15). In Cell H16 enter your EMA formula =((F16-H15)*$H$3)+H15
Calculate Elder Ray Bull Power
Next calculate Bull Power. Bull Power is the High – EMA. In Cell I15 enter =D15-H15
Calculate Elder Ray Bear Power
Next calculate Bear Power. Bear Power is the Low – EMA. In Cell I15 enter =E15-H15
Copy the Indicator to the Cells Below
Highlight the cells and drag the formulas down to all the cells below.
Excel Formulas
SMA H16 =AVERAGE(F4:F16)
EMA Factor H3 =2/(H2+1)
EMA H17 =((F17-H16)*$H$3)+H16
Bull Power I16 =D16-H16
Bear Power J16=E16-H16
Related Links
If you are interested in using Excel to backtest trading strategies my new Ebook course: How to Backtest a Trading Strategy using Excel is now available in the Amazon Kindle Bookstore.
If you want to know more about Alexander Elder’s books then check out my review of Come Into My Trading Room in the Essential Traders Library series.
If you are interested in using Excel for trading purposes, you may be interested in how to calculate the following indicators:
Calculating the SuperTrend Indicator Optimising Trading Strategies using Excel Calculating Bollinger Bands Using Excel
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