After Force Index and Fisher Transform the Elder Impulse System indicator was also developed and described by Alexander Elder in his books. It’s based on two popular indicators – a 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.
Does the elder impulse system work?
If traders want to measure the trend and gauge the market movement, the Elder Impulse System is best for them. Whether a trend speeds up or slows down, can be identified with the indicator. The trading system is basically built on two indicators, a 13-day exponential moving average and the MACD histogram. Let’s start with the usage of the indicator and I’ll move on to the setup process.
Key Points on Elder Impulse System Indicator Usage
These are some of the key points on EIS (Elder Impulse System) usage. The usage can be of different types, based on the application method. Many successful traders use the system all over the world. So let’s see the points below.
- 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 intermediate.
- Multiply this intermediate time frame by five to get your long-term timeframe.
- The Daily chart of traders used for an intermediate timeframe can simply move to weekly charts for a long-term timeframe.
- The traders who are using 10-minute charts to chart their “intermediate” timeframe, can also use 60-minute charts for their “long-term” timeframe.
- Once you decide on the trading timeframe, you can then use the longer timeframe to identify the bigger trend. You can also accomplish this using one chart.
Elder Impulse System Indicator Formula
- Bullish price bar: Here, (13-period EMA > previous 13-period EMA) and (MACD-Histogram > previous period’s MACD-Histogram)
- Bearish price bar: Here,(13-period EMA < previous 13-period EMA) and (MACD-Histogram < previous period’s MACD-Histogram)
- Neutral price bar: It is when conditions for a bullish price bar or bearish price bar are not met.
How can we set up the Elder Impulse System on Charts?
The method of putting up the Elder Impulse System is quite simple and straight. To make the concept clear, I place two sets of examples here, one is with Zerodha kite and the other one is with Upstox pro.
Set up the System with Zerodha Kite
Check the State Bank of India chart above to understand how to add this technical indicator to your Zerodha Kite. This indicator is available in the STUDIES section.
The indicator is tri-color-coded by default – bullish (green), bearish (red), and neutral (blue). These are customizable, you can change the colors as per your wish.
Set up the System with Upstox Pro
Here, is the second example of the Elder Impulse system with Upstox Pro. To get the system, you just need to click on the indicator section, and you are there. The setup procedure is simple like the Zerodha Kite.
Here, also, you can change the colors to bullish, bearish, and neutral colors.
Profitable Trading Strategies with the Elder Impulse System
Now, let’s go through the most important part of the content, how to make profits by using the Elder Impulse System Indicator strategies. After lots of experiments, we are able to find out some of the most profitable strategies for it. We divide these into two-part, simple and advanced. So, let’s start with the most simple and basic one.
Basic and Simple Strategies
- A buy signal of this indicator occurs when the long-term trend is deemed bullish and the EIS (Elder Impulse System) turns bullish on the intermediate-term trend.
- In other words, we can say that the weekly chart has to show a clear uptrend in order for a daily buy signal to be valid.
- A sell signal of this indicator occurs when the long-term trend is likely to be bearish and the EIS (Elder Impulse System) turns bearish on the intermediate-term trend.
- Another important point is Daily sell signals that happen when the weekly chart is not in a clear downtrend are ignored.
In order to decode the system, it is advisable to use other technical tools along with this. Like here, I add MACD and SMA (Simple Moving Average 50) to find out the exact entry-exit points.
In order to identify the exact point at which both the moving average and MACD align in one direction, which is upward, this indicates a buy signal. In the same way, we assume a sell signal when both the MACD and the ‘Elder Impulse System’ turn bearish.
Now, look at the above picture, there, both SMA and MACD turn positive before the bullish trend. Price went above the 50 SMA line and MACD also turned positive there.
The Elder Impulse System Indicator is a technical analysis tool designed by Alexander Elder to help traders identify and capitalize on any possible trend reversals. It combines several moving average calculations with momentum-based indicators, using them to gauge market sentiment and generate buy/sell signals for investors.
The Elder Impulse System Indicators come packaged as part of most charting software applications. To use it, simply load an asset’s chart in your application, set the parameters accordingly, and look for green or red impulse bars that show potential trading zones where buying or selling could occur.
When an impulse bar turns blue it means there has been a confirmed bullish signal – meaning it’s time to buy! An aggressive strategy is encouraged when this type of confirmation occurs with higher volumes sustained over multiple days than those normally encountered during traditional market swings.
The goal of the Elder Impulse System Strategy is to provide traders with ways of capitalizing on probable trends reversals in stock markets – allowing them to maximize their profits but minimize their risks when entering positions on stocks listed in global exchanges like NASDAQ OMXN / NYSE Euronext, etc.
Traders can also use the indicator to prevent bad trades and whipsaws before entering a trade. You can ignore long trades when the Elder Impulse System is not in a strong bull orbit (green bars) and ignore short trades when the system is not in a strong bear orbit (red bars). Also, trades need to be avoided when the intermediate time frame and long-term timeframe colors are contradicting. Traders can also use this elder impulse system indicator to anticipate patterns or reversals. Besides this, you can also apply the system as a short-term reversal for confirmation.