The Elder Ray index actually consists of two indicators:

"Bull Power" (Daily High - n period moving average) and

"Bear Power" (Daily Low - n period moving average).

Bull Power is used to measure the potential for the price to increase above the moving average, while Bear Power is used to measure the potential for the price to decrease below the moving average. Long positions are taken when the Bear Power is below zero and there is a bullish divergence while Short positions are assumed when the Bull Power is above zero and there is a bearish divergence.

Developed in 1989, the Elder Ray is an extremely accurate and effective means of identifying divergences between bull or bear power and prices and helping time the best trading opportunities.