Introduction : After Elder Force Index, the Elder Impulse System indicator was also developed and described by Alexander Elder in his books. It’s based on two popular indicators – an 13-period Exponential Moving Average (EMA) and a histogram MACD. The Elder Impulse System uses the Ema indicator for defining a short-term trend and the MACD-Histogram measures momentum. This indicator serves as a good filter for choosing the moment to enter the market. This is a unique indicator combination of color-coded into the price bars for easy reference.
Usage: The Elder Impulse System indicator can be used across different timeframes, but trading should be in harmony with the bigger trend. Elder recommended calling the current trading timeframe as intermediate. Multiply this intermediate time frame by five to get your long-term timeframe. Daily chart of traders using for an intermediate timeframe can simply move to weekly charts for a long-term timeframe. In traders using 10-minute charts to chart their “intermediate” timeframe can use 60-minute charts for their “long-term” timeframe. Once the trading timeframe is decided, chartists can then use the longer timeframe to identify the bigger trend. This can even be accomplished using one chart.
Check the State Bank of India chart above to understand how to add this technical indicator in your Zerodha Kite. This indicator is available in the STUDIES section. The indicator is triple color coded by default – bullish (green), bearish (red) and neutral (blue). Now lets understand how to identify bullish or bearish trade setups using Elder Impulse System indicator.
A buy signal of this indicator occurs when the long-term trend is deemed bullish and the Elder Impulse System turns bullish on the intermediate term trend. In the weekly chart has to show a clear uptrend in order for a daily buy signal to be valid. In daily buy signals that happen when the weekly chart is not in a clear uptrend are ignored.
A sell signal of this indicator occurs when the long-term trend is deemed bearish and the Elder Impulse System turns bearish on the intermediate term trend. In the weekly chart has to show a clear downtrend in order for a daily sell signal to be valid. In daily sell signals that happen when the weekly chart is not in a clear downtrend are ignored.
Conclusion : The Elder Impulse System indicator can be used to prevent bad trades and whipsaws before entering a trade. You can ignore long trades when the Elder Impulse System is not in strong bull orbit (green bars) and ignore short trades when the system is not in strong bear orbit (red bars). Also, trades need to be avoided when intermediate time frame and long-term timeframe colors are contradicting. Traders can also use this indicator to anticipate patterns or reversals. The Impulse System can be used to identify a short-term reversal for confirmation.