If you follow closely the Forex market, you might be aware of the two types of traders on it – bulls are those who buy currency, because they believe that the market will go up and bears – the ones who sell, because they think the market will go down.
The Bears Power is a technical indicator that shows the strength of the bears. It was developed and designed by Alexander Elder, who described it in his book Trading for a Living. If the indicator is below the zero, bears are considered to be strong. If it is above the zero, they are weak. As basic concepts of the indicator we may say that the moving average of a price indicates where buyers and sellers agree and the lowest price in a day is reached when selling pressures are strongest
Thus, the difference between lowest price in a day and the moving average shows the level of the bears power.
Experts recommend that Bears Power should be used with another trend indicator, such as the moving average price. This could be a signal to buy when we have two conditions – the trend indicator is up and the Bears Power is negative but rising.
The buy signal is considered to be stronger if it follows a bullish divergence.
The basic formula for calculating the Bears Power is BEARS = LOW – EMA.
Where: Bears is the Bears Power, Low is the minimum price of the current bar and EMA is the exponencial moving average.