Elder Impulse System

Owned by Chris Harrison
Last updated: Aug 19, 2022 by Brendan Hebert (Unlicensed)
2 min read

The Elder Impulse System was designed by Alexander Elder and featured in his book, Come Into My Trading Room. According to Elder, “the system identifies inflection points where a trend speeds up or slows down”.

The Impulse System is based on two indicators, a 13-day exponential moving average and the MACD-Histogram. The moving average identifies the trend, while the MACD-Histogram measures momentum. As a result, the Impulse System combines trend following and momentum to identify tradable impulses. This unique indicator combination is color coded into the price bars for easy reference.

Green price bars show that the bulls are in control of both trend and momentum as both the 13-day EMA and MACD-Histogram are rising. A red price bar indicates that the bears have taken control because the 13-day EMA and MACD-Histogram are falling. A blue price bar indicates mixed technical signals, with neither buying nor selling pressure predominating.

Entries and Exits

A buy signal occurs when the long-term trend is deemed bullish and the Elder Impulse System turns bullish on the intermediate term trend. In other words, the weekly chart has to show a clear uptrend in order for a daily buy signal to be valid. Daily buy signals that happen when the weekly chart is not in a clear uptrend are ignored. A sell signal occurs when the long-term trend is deemed bearish and the Elder Impulse System turns bearish on the intermediate term trend. For example, the weekly chart has to show a clear downtrend in order for a daily sell signal to be valid. Daily sell signals that happen when the weekly chart is not in a clear downtrend are ignored.

Conclusions

The Elder Impulse System is designed to catch relatively short price moves. Elder notes the following: “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.” In addition to trading setups, the Elder Impulse System can be used to prevent bad trades by consulting it before entering a trade. Use the Impulse System to confirm bullish or bearish setups. Traders can ignore bullish setups when the Impulse System is not in full-blown bull mode (green bars) and ignore bearish signals when the system is not in full-blown bear mode (red bars). The impulse system can also be used to anticipate patterns or reversals. If you think a bull flag is taking shape or support from a Fibonacci retracement is near, the Impulse System can be used to identify a short-term reversal for confirmation.

Calculation

  • Green Price Bar: (13-period EMA > previous 13-period EMA) and (MACD-Histogram > previous period's MACD-Histogram)

  • Red Price Bar: (13-period EMA < previous 13-period EMA) and (MACD-Histogram < previous period's MACD-Histogram)

  • Price bars are colored blue when conditions for a Red Price Bar or Green Price Bar are not met.

  • The MACD-Histogram is based on MACD(12,26,9).