What are Bears Power indicator?
Everyday trading represents a battle of buyers (“Bulls”) pushing prices up and sellers (“Bears”) pushing prices down. Depending on what party scores off, the day will end with a price that is higher or lower than that of the previous day. Intermediate results, first of all, the highest and lowest price, allow judging about how the battle was developing during the day.
It is very important to be able to estimate the Bears Power balance since changes in this balance initially signalize about possible trend reversal. This task can be solved using the Bears Power oscillator developed by Alexander Elder and described in his book titled Trading for a Living. Elder based on the following premises when deducing this oscillator: moving average is a price agreement between sellers and buyers for a certain period of time, the lowest price displays the maximum sellers’ power within the day. On these premises, Elder developed Bears Power as the difference between the lowest price and 13-period exponential moving average (LOW — EMA).
Calculation for Bears Power indicator
The first stage of this indicator calculation is the calculation of the exponential moving average (as a rule, it is recommended to use the 13-period EMA).
BEARS = LOW — EMA
BEARS — Bears Power; LOW — the lowest price of the current bar; EMA — exponential moving average.
In the downtrend, LOW is lower than EMA, so the Bears Power is below zero and histogram is located below zero line. If LOW rises above EMA when prices grow, the Bears Power becomes above zero and its histogram rises above zero line.