The Elder Impulse System (EIS) is a technical analysis tool that combines two different indicators and turns them into a powerful trading system. It can be used to determine optimal entry and exit points, as well as to spot an upcoming trend reversal. Being a powerful trading system on its own, it can also be combined with other technical analysis tools. The EIS can be applied to any asset and any time frame. Read the full article to understand how to set up and use the Elder Impulse System in trading.
How it works?
As already mentioned, the Elder Impulse System is a combination of two indicators: a 13-day exponential moving average (EMA) and a MACD-Histogram. Both have a function of their own. The EMA is aimed at spotting the trend, while the MACD-Histogram identifies the momentum (the rate of the rise or fall in prices).
The Elder Impulse System is represented as a series of bars under the price chart. Green bars correspond to the periods of bullish market, when both the trend and momentum are positive. Red bars, in turn, correspond to the periods of bearish market, when the trend is going down, but momentum is still growing. Grey bars correspond to mixed signals, when neither bulls no bears dominate the market.
How to apply in trading?
There are several ways to apply the Elder Impulse System in trading.
First is to use the indicator as a self-sufficient trading tool. When several green bars appear in a sequence, bulls are said to dominate the market. When the opposite is true, and several red bars appear one by one, bearish sentiment is said to be prevalent. Traders may consider opening the deal in the corresponding direction.
You should, however, note that this indicator is not capable of determining the trend duration. It is, therefore, impossible to tell when the prevailing trend will come to an end. Volume indicators can help, as the trading volume is generally higher during the initial phases of strong trends.
When trading with the EIS alone, it may be wise to wait for a confirmation. In this case, a confirmation is 2–3 consecutive bars of the same color. Despite the fact that the Elder Impulse System can be used on its own, it is still possible to combine it with technical analysis indicators of different types: volatility, volume, etc.
Note that you can use the EIS as a supportive tool for other indicators. Let’s say you are trading with an Alligator as your primary tool. In this case you can still consult the Elder Impulse System to avoid false signals. The risk of opening a loss-making deal will be lower when a buy or sell signal, sent by the primary indicator, is confirmed by the same type of signal sent by Elder Impulse System.
This is what Alexander Elder, the man behind the EIS, said about this indicator:
“The Impulse System encourages you to enter cautiously but exit fast. This is the professional approach to trading, the total opposite of the amateur’s style. Beginners jump into trades without thinking too much and take forever to get out, hoping and waiting for the market to turn their way.”
It is worth remembering that Elder Impulse System, as any other technical analysis tool, is incapable of sending accurate signals 100% of the time. From time to time it may — and will — provide you with false signals. It is your task, as a trader, to identify and filter them out.
How to set up?
Setting up the indicator is easy. In order to do so, follow the steps below:
1. Click on the ‘Indicators’ button in the bottom left hand corner of the trade room,
2. Go to the ‘Trend’ tab,
3. Choose the Elder Impulse System from the list of available options and click ‘Apply’ without changing the setting.
The indicator is now ready to use. Note that you can also adjust the settings according to your liking. As there are quite a lot of them, you better understand how each of them will affect the indicator before changing them.
Now, when you know how to trade with the Elder Impulse System, you can proceed to the trading platform and give this strategy a try! If you wish, there is always an opportunity to try it out on the demo account first, and then emulate your strategy on the real account.Trade now