The Elder Impulse System: Combining Momentum and Trend
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The Elder Impulse System is a effective trading tool that combines a trend-following indicator and a momentum indicator to identify points in the market where a trend is accelerating. Developed by Dr. Alexander Elder, this system is designed to help traders enter and exit trades with precision.
The Two Components of the Elder Impulse System
The Elder Impulse System uses two indicators to measure trend and momentum:
- 13-period Exponential Moving Average (EMA): This is the trend-following component of the system. When the EMA is rising, the trend is considered to be up. When the EMA is falling, the trend is considered to be down.
- MACD-Histogram: This is the momentum component of the system. The MACD-Histogram is the difference between the MACD line and the signal line. When the MACD-Histogram is rising, momentum is increasing. When the MACD-Histogram is falling, momentum is decreasing.
How the Elder Impulse System Works
The Elder Impulse System classifies each bar on a chart as one of three colors:
- Green: A green bar indicates that both the trend and momentum are bullish. This occurs when the 13-period EMA is rising and the MACD-Histogram is rising.
- Red: A red bar indicates that both the trend and momentum are bearish. This occurs when the 13-period EMA is falling and the MACD-Histogram is falling.
- Blue: A blue bar indicates that the trend and momentum are in conflict. This occurs when the 13-period EMA and the MACD-Histogram are moving in opposite directions.
Trading with the Elder Impulse System
The basic trading rule for the Elder Impulse System is to only enter long positions when the bars are green and only enter short positions when the bars are red. Blue bars indicate a time of indecision, and it is generally best to stay out of the market during these periods.
Example of Elder Impulse System Signals
| Day | Close | 13-period EMA | MACD-Histogram | Bar Color |
|---|---|---|---|---|
| 1 | 100 | 99.5 | 0.5 | Green |
| 2 | 102 | 100 | 0.7 | Green |
| 3 | 101 | 100.2 | 0.4 | Blue |
| 4 | 99 | 100 | -0.2 | Red |
| 5 | 98 | 99.5 | -0.5 | Red |
This table shows how the Elder Impulse System would classify each bar based on the direction of the 13-period EMA and the MACD-Histogram.