Crypto Trading 101: The Elder RayHi Hoppers! Today we dissect the Elder Ray and learn how to take long positions along with the Parabolic SAR.
Without further due, let’s get into the Elder Ray!
Elder Ray
The Elder Ray is an oscillator with components of trend and momentum indicators to measure the strength of bullish and bearish trends. It uses exponential moving averages to generate signals and pinpoint the dominant power of the market. This indicator labels both trends as “bull power” and “bear power”. When the green sticks are longer than the red ones, the trendline becomes green to indicate that the bullish power is stronger than the bearish power. At this event, the Elder Ray signals a buy. When the red sticks are longer than the green ones, the Elder Ray signals a sell.
One drawback faced by the Elder Ray is that it provides too many signals in a ranging market. To improve the oscillator, we have added the Parabolic SAR to work alongside the Elder Ray. Thus, we only take a position when both indicators signal a buy.
What is the Parabolic SAR?
The Parabolic SAR is a trend-following indicator marked on the graph by black dots. When the black dots are below the price, the Parabolic SAR indicates a bullish market. When the black dots are above the price, it suggests a bearish market.
Elder Ray + Parabolic SAR
We can use the sell signals from the Elder Ray to close out positions. As the Elder Ray is quick to react to price changes, it is also fast to take your profits before the market turns against you. One positive aspect of the strategy is that it made big wins and small losses (during the short time we analyzed it). If your strategy has a winning percentage of 50%, but the winners make a 3% profit while the losses are at 1%, then your strategy will still be profitable even if you only win half of the time.
Have a great trading week ahead, and we will catch you on the next one!
—CRYPTOHOPPER—
