The Elder Impulse System owes its name to the man who was a creator of it. Alexander Elder’s system relies on two indicators that are following the trend and measuring momentum. The Elder Impulse System aims to identify the moments when the pace of the trend changes.
Introduction to the Elder Impulse System
The famous system invented by Alexander Elder consists of two indicators. First, we have the Exponential Moving Average (EMA) with period 13. This one is used to identify the presence of the trend. Then, there is the Moving Average Convergence Divergence (MACD) which measures the trend’s momentum. A trader receives a signal to enter a position from a combination of the two above.
There is bull dominance in the market when the EMA13 is rising and when the MACD histogram is going up. We marked these situations using green rectangles on the exemplary chart below. Some trading platforms have the Elder Impulse System implemented as an indicator that is coloring the price bars, so you have green, red, and grey bars.
The bears are in dominance when the EMA13 is falling and when the MACD histogram is declining. I used red rectangles below to show such situations (those are Elder’s “red bars”).
Using distinct time frames
It is possible to use the Elder Impulse strategy at any time frame, but it ought to keep up with the bigger trend. Think about what time frame you prefer. Set it as an intermediate one. Then multiply it by five and you will get a long-term time frame.
It does not have to be precisely five times as big. To determine a larger trend use a long-term time frame that is well adjusted to your preferred one.
For example, if you like trading on a 10-minute chart, you may set a 60-minute chart for a long-term time frame.
There is yet another possibility. You can operate on one chart only. You will just need to add one more Exponential Moving Average. This one should have a period larger 5 times than the EMA used in the Elder Impulse System. We were using the EMA13 till now, so we should set additional EMA for the long term trend. We will add the EMA with a period 65 to use it as a filter for our signals.
The main rule is to look at whether the price bars are developing below or above the EMA65.
Applying the Elder Impulse strategy in trading at Olymp Trade
How to enter a buy position with the Elder Impulse System
Decide where the EMA65 is situated. The uptrend is acknowledged when the price bars are developing above the EMA65 line. If this is the case, we are looking only for buy signals. Now check if the EMA13 and the MACD histogram are rising. When a “green candle” appears, you should enter a long position with the beginning of the next candle. The length of the position depends on the chart time frame you are currently using. With a 5-minute chart, for instance, keep the position open for around 15 minutes that is for a duration of three consecutive candles.
How to enter a sell position with the Elder Impulse System
The downtrend is verified when the candles are developing below the EMA65. Now you are waiting for the situation when both, the EMA13 and the MACD histogram are falling. The appearance of a “red candle” is a signal to sell. Again, adjust the time of your position according to the time frame that is set for your chart. With a 5-minute chart, open 15 minutes sell transaction.
Elder claims that his strategy makes it possible to catch relatively short changes in the price. His advice is to enter carefully and thoughtfully but exit fast and securely.
Meanwhile, many beginning traders do the opposite. They open positions carelessly and rapidly and stick to them for a long time in the hope that with time, the price will move in a favorable direction.
You get an extra verification for your trading positions when using the Elder Impulse strategy. As such, it can save you from some unfortunate entries and losing money.
Remember, there is a free Olymp Trade practice account. Use it to see for yourself how the Elder Impulse System works. Try different time frames and observe the results. Make sure you know the strategy well and have practiced it thoroughly before you move on to trading actual currency. Even then, remember that you most likely will face losses.
Best of luck!
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