Bulls and bears in the forex market – the main participants in trade, which differ in their characteristics and work strategy in accordance with the direction of the transactions being concluded. The concepts appeared on stock exchanges, but quickly came into use and today they are used in most financial markets, including Forex.
To understand who the bulls and bears are in Forex, and what the concept of “bullish/bearish” means, you need to look at history. The terms appeared before the existence of the foreign exchange market, the first to use them was K. Johnson in 1714 in Country Lasses, which described the nuances of the work of exchange players.
Since then, these definitions have become extremely popular - today on the Internet you can find pictures, wallpapers of corresponding themes, and many monuments to bulls and bears:
Who are the forex traders belonging to the first or second group:
1) Forex traders are called bulls who work for the market to rise and hope for an increase in the value of the currency. By opening long positions, they increase demand and, accordingly, the price of a financial instrument. Just as an animal raises an enemy on its horns, traders in this category increase the price by aggressively buying currency.
2) Bears try to lower prices and increase supply. They open short positions, selling until the price falls to the required level.
In Forex, both categories of traders expect the rate to rise or fall, shaping it by buying or selling the base currency against the quoted one. There are still others who remain neutral until a trend becomes clear.
In other words, any trader, depending on his priority in trading in at the moment, is a Bull or a Bear. There is a desire to sell - “clubfooted”, he believes that he needs to buy - he becomes an amateur to raise “on the horns”. If his priority changes, then accordingly he will simply move to the opposite group of players for promotion or demotion.
Features of different types of trading in the foreign exchange market
In Forex, bulls and bears work differently. From the moment trading sessions open, the former immediately begin to buy currency, the latter immediately begin to sell. It should be noted that this confrontation does not stop; players try to get maximum income thanks to downward or upward dynamics of the exchange rate and compete.
Bull trading aims to increase capital due to market growth - an increase in the price of a currency and its timely sale at a good price. First, the merchant buys, then waits for the price to rise and successfully delivers. The resulting difference constitutes the income of the bull trader.
If the market falls, the bulls wait, their main interest is the increase in the price of the asset and its profitable sale. Therefore, in the case when quotes are rising, the market itself the trend is called bullish.
The main goal of the bearish strategy is to quickly “set” the exchange rate and reduce it as much as possible through various actions. Bearish trading involves increasing profits due to the general deterioration of the condition, since they encourage the price to fall even lower when the price falls. Assets are sold in order to reduce their value and buy them even cheaper in the future. A fall in market prices is called a bearish trend.
Even though the buyers' trading strategy is more understandable (buy low and sell high), dealing with the bears is not that difficult. In this case, it is important to be able to: if a trader assumes that the value of a currency will soon fall, he can take out a loan from a broker in the form and quickly sell a certain amount. Then wait for an increase and buy back much cheaper, returning what you borrowed to the broker and keeping the difference for yourself.
Knowing how to correctly predict events and make correct forecasts, both categories of traders have a chance of making a good profit. The ratio of bulls and bears in Forex changes periodically: a bullish trend turns into a bearish one and vice versa, or into a flat when prices are calm and at approximately the same level, which indicates the balance of power among the players.
Indicators for determining the ratio of buyers and sellers
To determine the ratio of bulls and bears in Forex, the corresponding indicators Bulls Power and Bears Power, created by Alexander Elder, are used (here is an example using the proposed indicators).
And here is a screenshot of 2 indicators in MT4 according to the specified strategy (click to enlarge):
- demonstrates the power of bullish traders. The value of the moving average, which is built based on the last 13 bars, is subtracted from the maximum cost, regardless of the selected timeframe. The final number characterizes the strength of the bulls. The moving average reflects the balance of power, and the maximum value demonstrates how seriously buyers managed to shake up the situation. On the chart, the indicator is displayed in a histogram format, where the upward trend is above the zero line, and the downward trend is below. The stronger the bullish trend, the longer the bar.
- evaluates the strength of short sellers. Calculations are carried out in a similar way: the current minimum value is subtracted from the 13-period moving average, the final value demonstrates the strength of sellers. Graphically, this is the same histogram, where the bars of a downward trend are located below the zero line, and bars of an upward trend are located above. The length of the bar determines the relative strength of the bearish trend.
As you can see from many Forex strategies on this site, indicators of the strength of bulls and bears are practically not used independently; most often they are combined with trend ones and solely as confirmation of the direction of the transaction.
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Any financial market today it is a constant price movement. The value of each asset changes continuously from the beginning of the trading week on Monday, when the exchanges open, and continues until Friday evening, ending with the close of the last trading session. And this cycle repeats again and again after every couple of days off.
But what is the very driving force that does not allow the quotes of currency pairs to stand still for a second? This is a fierce confrontation between people buying currency and traders who are trying to sell it. In other words, bulls and bears in Forex.
This is the law of economics: it is the ratio of global investments in one and another currency that determines its reliability and stability, and therefore the quotes of a pair of these monetary units. To make it easier for a simple speculator to imagine the current balance of power, indicators of the power of bulls and bears were invented - Bears and Bulls Power Indicators.
Bulls Power – bull power indicator
Figure 1. How Bulls Power works
Bulls Power is an oscillator indicator designed to determine the extent to which the bullish, i.e. upward, trend is currently dominant in the market.
It looks like a window separate from the main chart, which contains a histogram built from vertical columns. Each column corresponds to a candle or bar on a live chart. In the center of the Bulls Power window there is a horizontal line dividing the upper and lower parts of the indicator. The line represents the line on which the forces of bulls and bears are balanced.
Each vertical band of the oscillator is built from the central zero line up or down, depending on whether it belongs to an upward or downward trend. The length of the indicator candles is different: the more pronounced the trend on the asset chart, the longer the candle will be.
This description of the Bulls Power indicator allows us to conclude that it is both a trend indicator and an oscillator. If we conditionally draw a moving average along the upper edges of the bullish bands and the lower edges of the bearish ones, we will get something similar to or with an increased period and less sensitivity to price noise.
To be able to use the indicator as correctly as possible, it is advisable to understand how it calculates indicators, which it then converts for the trader in the form of vertical lines. The height of the candles in Bulls Power depends on how much the current maximum price is higher than the average value of the asset for the period specified in the settings.
Price indicators for the past period are expressed in the form. The evaluation algorithm is simple: if the current maximum price is above the EMA value, then the bar on the Bulls Power is built above the zero horizontal line, but if the moving average indicators are higher, the candle is bearish.
This is an important difference between the indicator of the strength of bears and bulls from most oscillators: it takes into account the value of not a simple moving average (MA), but rather the EMA. If MA evaluates the chart indicators for the entire specified period as equivalent, then EMA gives greater importance to the most recent ones, slightly understating those that are older. Thus, Bulls and Bears Power react faster to changing trends.
Bears Power – bear power indicator 
Figure 2. Both indicators in the MT4 terminal
The Bears Power indicator is a kind of mirror twin brother of Bulls Power. They have an identical appearance and the same rules for constructing indicator candles. The only difference is that the bearish strength indicator compares the difference in the average price value not with price highs, but with lows.
This means that the candle on the Bears Power oscillator will be bullish when the lowest point of the live chart bar is above the average EMA, and vice versa: finding the minimum price below the value of the exponential moving average draws a downward candle on the indicator.
The answer to the question of how to use the Bears Power indicator is simple: it needs to be done in conjunction with Bulls Power. After all, both oscillators are the invention of Alexander Elder, whose worthy analogues have not yet been found. What makes them unique is that Bulls and Bears Power were originally created not as two separate products, but as a complement to each other. Consequently, all the main trading strategies for them are based on the analysis of both oscillators simultaneously.
Figure 3. This is how the length of candles on indicators is determined
The list of the most popular indicators contains many worthy products. But in order not to get lost among them, indicators of the strength of bulls and bears must have certain advantages. Here are the main ones:
- Indicators are present by default in all major trading platforms such as MT4, MT5, Ninja Trader, ZuluTrade, Mirror Traer. Therefore, you don’t have to waste time searching and installing.
- Sensitivity to noise is the main drawback of oscillator indicators. Because of them, false signals arise almost more often than reliable ones. But this is not a problem for Bulls and Bears Power, as they have anti-aliasing, which makes the indicators always look smooth, rather than sharp and jagged.
- Using EMA in the algorithm instead of the usual moving average makes it possible to react more quickly to changes in market sentiment. This is possible due to the fact that exponential favors the latest price candles over older ones. In more detail: MA with a period of 10 will count each bar equally, that is, 10%. EMA estimates the importance of the last of 10 candles at 18% out of a hundred.
- The fact that a trader makes important trading decisions by looking at 2 indicators at once automatically eliminates many false signals that appear on only one of them.
The Bulls Power and Bears Power indicators do not require any settings, as the default parameters are perfect for any trading instrument and on any timeframe. The only things you can change are the color of the candles and the type of zero horizontal line (dotted, solid). To do this, right-click on the oscillator and select the appropriate option in the settings.
Figure 4. There is no need to change default settings
Figure 5. Appearance indicator
The description of the Balance of power indicator is very similar to Bulls Power and Bears Power. In fact, it is an option that combines the last two. The only difference is that it takes into account both the high and low of price bars. Balance of power is also made in the form of a histogram, but its candles are painted in two colors, indicating the predominance of ascent or descent. And the readings are calculated using the formula (Close – Open)/(High – Low).
The indicator is perfect for those traders who prefer to use one oscillator instead of two. The strategies used using Balance of power are the same as for the bull and bear indicators. It shows the greatest effectiveness in conditions of average volatility when trading for a trend reversal.
Another good option: trade Balance of power in the direction of the trend, opening trades when the indicator candles cross the middle line. In this case, it is better to determine the main trend using the moving average line.
How to trade using bull and bear strength indicators 
Figure 6. Trading on divergence
The purpose of oscillators is primarily to determine trend changes and corrective movements. Therefore, for Bulls Power and Bears Power, the strategies will be mainly reversal.
Divergence
Divergence is a discrepancy in the readings of the price chart and the oscillator, which indicates an imminent change in the direction of movement. There are two types of divergence: bullish and bearish. Bullish divergence occurs when the market is in a downtrend. The bottom line is this: the price moves down, forming a new lower low. At the same time, a minimum is formed on the indicator, which, on the contrary, is higher than the previous one.
Thus, if you draw a straight line on the price chart through the last two bottoms, it will be directed downward. And if you do the same on the oscillator, then the straight line will take an ascending position. This discrepancy is divergence. For bearish divergence, a higher top needs to form on the live chart during an uptrend, and a lower top on the indicator.
When trading on divergence, the condition for buying will be the occurrence of bullish divergence on Bulls Power and Bears Power. The market is entered immediately after a higher low is formed. To open a sell order, you need to make sure there is a bearish divergence and enter at a lower high.
Important! Trading based on oscillator divergence is very effective in a flat or moderate trend. If the price begins a sharp movement that is several times more intense than normal volatility, it is better to refrain from trading using this strategy. In this case, divergence will give many false signals.
Trading with the trend
This strategy is not used in flats, but is used during stable trend movements. It is based on convergence, therefore it is designed to find the continuation of the trend after a correction.
Bull convergence occurs when, in an uptrend on the price chart, a new low is higher than the previous one, and on the Bulls and Bears Power - lower. This situation means that the asset is oversold and does not want to decline further. You need to open an order at the moment when the minimums occur, by which convergence is determined.
Bearish convergence occurs in a downtrend after an upward correction. The price forms a lower high, and the indicator forms a higher one. This means that the asset is overbought, and it makes sense to enter into a sell transaction. You need to exit the trade at the moment of formation of a new top during an ascent, and a new bottom during a downward trend. It is recommended to set a stop loss immediately after the extremum preceding the one at which the transaction is opened.
Results
Bears Power and Bulls Power are excellent oscillators that help traders feel who has the upper hand at the moment. They will be very useful to speculators who are already tired of regular untimely entries into the market.
Smoothing makes indicators virtually immune to price noise and simply pleasing to the eye. So you can safely create any trading system with the addition of Bulls and Bears Power.
There are always two groups of traders present in the market, one of which prefers to sell an asset and is called bears, and the other prefers to buy an asset and is called bulls. The balance of forces between them is one of the important factors determining the price dynamics of any financial instrument. Using indicator of the strength of bulls and bears it is possible to predict with high reliability which direction the quote will move.
It should be said right away that this tool technical analysis consists of two parts. One is called Bears Power and calculates the strength of the bears, and the other is called the Bulls Power indicator and calculates the strength of the bulls. But it is advisable to use them only together.
Description of the Bears Power indicator
It is calculated by subtracting the EMA value from the Low price of the current candle. The essence of this formula is to demonstrate the strength of the bears in relation to the average (using the exponential moving average method) price for a time period of a given length. The low price is used in the formula because the bears push the quote down, so it is they who determine the minimum prices.
Description of the Bulls Power indicator
Its calculation is performed by subtracting the High price of the current candle from the EMA value. Thus, this formula demonstrates the strength of the bulls in relation to the price averaged over a time period of a given length (using the EMA method). The formula uses the High price, since the bulls push the quote up, based on which they determine the maximum prices.
Interpretation of signals from indicators of strength of bulls and bears
Both of them are drawn in the basement window as histograms, the length and position relative to the 0th level of the columns indicates the relative strength of a particular group of traders. Thus, the longer the histogram column of the Bears Power indicator:
- located in the positive zone, the weaker the bears;
- located in the negative zone, the stronger the bears.
Accordingly, the longer the histogram column of the Bulls Power indicator:
- located above the 0th level, the stronger the bulls;
- located below the 0th level, the weaker the bulls.
And the length of the histogram column, in turn, depends on the difference in the price levels of the maximum and minimum of the current candle and the average price.
Therefore, it is advisable to compare the lengths and positions of the columns of each indicator. For example, if on both indicators the columns have almost the same length and are located in the positive zone (in Fig. 1 such an area is highlighted with yellow verticals), then this indicates a strong upward trend (High and Low prices of the current candle are significantly higher average price). Accordingly, when long bars are in the negative zone on both indicators (this area is highlighted in Fig. 1 with red verticals), it indicates a strong downward trend, since the current candle is completely located significantly below the average price.
But if the Bulls Power column is located in the positive zone, and the Bears Power column is located in the negative zone, and the length of the columns is almost the same (such a section in Fig. 1 is highlighted with white verticals), then this indicates a lateral movement, since of the current candle, the Low price is below the EMA, and the High price is above the EMA. But the reverse situation (Bulls Power columns in the negative zone, and Bears Power columns in the positive zone) cannot happen.
It should be taken into account that when installing a pair of indicators of the strength of bulls and bears on the chart, it is necessary to set them the same calculation periods.
Trading strategy using the Bears Power and Bulls Power indicators
In the following examples, Bulls Power is displayed in the upper basement window, and Bears Power is displayed in the lower one. The blue bars indicate the dynamics of the transactions being made.
In Fig. 2, the yellow vertical marks the candle where the Bulls Power columns began to move towards the negative zone, and the Bears Power columns, being in the negative zone, began to lengthen. This is a sign of an intensifying downtrend, so a sale could be made on the next candle. It was possible to close it in profit after the candle indicated by the red vertical - on it, the Bulls Power columns began to lengthen in the positive zone, and the Bears Power columns moved to the positive zone.
In Fig. 3, a yellow vertical line marks a candle in which the Bulls Power histogram is growing in the positive zone, and the Bears Power histogram has moved from the negative zone to the positive zone, which is a sign of an intensifying upward trend. Therefore, a purchase is made on the next candle. This trade closes in profit after the red vertical candlestick as it shows the Bulls Power histogram moving into negative territory and the Bears Power bars beginning to lengthen into negative territory.
The described technical analysis tools have the properties of oscillators, so you can look for divergences that indicate a likely trend reversal:
- ascending – if the divergence is fixed at the maximums (marked by the left blue segments in Fig. 4);
- downward – if the divergence is fixed at the lows (marked in Fig. 4 by the right blue segments).
In Fig. 4, both divergences occurred on both indicators, which significantly increases the significance.
One of the factors that determines the direction and speed of an asset’s price movement is the relationship between traders selling and buying it. If there are more sellers and they trade more intensively, then the asset becomes cheaper. If buyer activity is higher, the price of the asset will rise. To determine the relationship between buyers and sellers, a indicator of the strength of bulls and bears, demonstrating the activities of which of them currently dominates the market.
The MetaTrader trading platform has two built-in technical tools that perform the task described above - BullsPower and BearsPower. They complement each other, determining the strength of only a specific group of traders - sellers (bears) or buyers (bulls). The readings of these indicators are displayed as a histogram in the basement window (Fig. 1). The height of its columns is proportional to the strength of a particular group of traders.
It is worth noting that when calculating them, only price values are used. First, the moving average is calculated for a given period (by default equal to 13 candles, but customizable when installing the indicator on the price chart). The resulting value is then compared with certain price indicators (maximum or minimum price) of the current period. It turns out that to determine price dynamics, an expression is used that is directly determined by this very price dynamics. This feature should be taken into account when using these technical tools.
It is also important to remember that even if there is a predominant number of buyers or sellers, the market will not necessarily be in an upward or downward trend. It is influenced, among other things, by the volume of trading performed by each group. For example, even with a significant superiority in the number of bulls on the market, a decrease in price may be observed if the volume of sales is greater than the volume of purchases. Conversely, if the volume of purchases exceeds the volume of sales, even if there are more bears than bulls, the price of the asset may rise.
Description of the Bears Power and Bulls Power indicators
The classic formula for calculating bullish strength involves subtracting the value of the moving average for the period from the maximum price of the current candle. In the formula for determining the strength of bears, the minimum price of the current candle is subtracted from the moving average value. Since the subtraction function is performed in the formulas, its result can be either positive or negative. Therefore, the tops of the columns of the histogram reflecting the results of calculations are located both above and below the horizontal zero level.
In both indicators, the arrangement of the columns indicates the same trends:
- if above zero, then the trend is bullish;
- if below zero, then the trend is bearish (Fig. 2).
In addition to these signals, the direction of movement of successive tops of the histogram columns is also used in market analysis:
- if they rise, then either the bearish trend loses strength (when the columns are located below the zero axis), or the bullish trend strengthens (when the columns are located above the zero axis);
- if they go down, then either the bearish trend is gaining strength (if the bars are located below the zero level), or the bullish trend is weakening (if the bars are located above the zero level).
Another useful signal for predicting the market situation is divergence, i.e., different vertical directions of the minimums or maximums of the price and the indicator. This state finds practical applications in many technical analysis tools, predicting a reversal of the current market trend. If the price's successive highs rise (uptrend), and the corresponding highs on the histogram fall, then the bears gain strength, slowing down the price growth and reversing its downward movement. Similarly, an upward reversal of a downtrend is preceded by multidirectional lows:
- on the price chart they are consistently decreasing;
- in the histogram they consistently increase.
Modification of Bulls Power and Bears Power indicators
By combining these two indicators, a technical tool is obtained that shows who currently dominates the market. To do this, add the strength of the bears and the strength of the bulls and divide the calculated sum by 2. The resulting result is displayed in the form of a histogram oscillating around the zero axis. You can download this modification of the indicator of the strength of bears and bulls from here .
Strategy based on the Bears Power and Bulls Power indicators
Building a strategy using any indicator comes down to supplementing it with one or more technical tools. In this case, one of them is used as a signal, indicating the moments most suitable for opening positions. Other indicators perform the function of confirming or refuting generated trading signals (separating false signals from true ones).
You can, for example, supplement the strength indicator with Parabolic. In this case, signals to enter the market will be generated by Parabolic (they consist of changing the position of the points relative to the price). The indicator of the strength of bulls or bears will filter out false signals from Parabolic. For example, if Parabolic indicated a buying opportunity, but the Bears Power (or Bulls Power) histogram is below the zero level and is consistently decreasing, then you should not open a long position (Fig. 4). Likewise, it is better to refrain from entering the market when there is a Parabolic sell signal when the histogram columns are located above the zero axis.
The Total Power Indicator calculates how many bars from bullish and bearish trends there were during a given time period, and then calculates the proportional ratio of bears, bulls and total (counted as the difference between bulls and bears) for the current bar. Thus we get continuous lines of relative medium strength bulls and bears over a period of time without the main drawback of the original indicators - the lack of a long-term perspective.
Input parameters:
- LookbackPeriod (default = 45) - the main period of the indicator. Determines the number of bars to view to calculate the dominance of bulls/bears.
- PowerPeriod (default = 10) - the period of the original Bear Power and Bull Power indicators.
Ways to use the Total Power Indicator forex indicator:
The surest method (but also the lowest frequency) is to wait until the Bull (or Bear if you are selling) and Total lines show a value of 100 and then go short (short if it was the Bear line).
The intersection of the Bear and Bull lines can also be used for trading. If after crossing the Bull line is at the top, buy, if the Bear line is at the top, sell.
The intersection of the Bull and Bear lines with the Total line can be used both to enter and exit the market. If the Bull line crosses Total from below, open a long position, if the Bear line crosses Total from below, open a short position. If the lines cross Total from above, then it’s time to close the corresponding position.
An alternative way is to use specific indicator levels instead of crossovers. For example, open a long/short position if the Bull/Bear line rises above level 66.
According to experts from the magazine site, forex indicator Total Power Indicator can be used in a trend trading strategy provided that additional filters are used.
Other trend indicators
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