What Is the Elder Impulse System?
- Green: trend rising + momentum rising
- Red: trend falling + momentum falling
- Blue: trend and momentum disagree
Many technical indicators answer only one question.
A moving average can help identify trend direction. A momentum indicator can help determine whether that trend is strengthening or weakening.
Alexander Elder's Impulse System attempts to combine both ideas.
Instead of asking only whether price is trending higher, the system asks:
Is the trend moving higher AND is momentum improving at the same time?
When the answer is yes, the bar becomes green. When trend and momentum are both deteriorating, it becomes red. When they disagree, it becomes blue.
That simple idea is what makes the Elder Impulse System useful.
Elder discusses the framework in Come Into My Trading Room .
How the Elder Impulse System Works
The Elder Impulse System combines two measurements:
- 13-period EMA: determines whether the short-term trend is rising or falling.
- MACD Histogram: determines whether momentum is increasing or decreasing.
The system then compares today's readings with the previous period.
This distinction is important. Elder isn't simply asking whether the EMA is above price or whether MACD is above zero.
He is examining the direction of change.
EMA rising + MACD Histogram rising
Bearish impulse:
EMA falling + MACD Histogram falling
Neutral:
The two indicators disagree
If you aren't familiar with these indicators individually, read:
Elder Impulse System Rules: Green, Red and Blue Bars
Green Bar — Bullish Impulse
A price bar becomes green when:
- The 13 EMA is higher than it was during the previous period.
- The MACD Histogram is higher than it was during the previous period.
In other words:
Trend is rising AND momentum is improving.
This creates a bullish environment, but it should not automatically be interpreted as "green = buy."
A green bar occurring directly underneath major resistance can be much less attractive than a green bar appearing during a pullback within an established uptrend.
Red Bar — Bearish Impulse
A bar becomes red when:
- The 13 EMA is lower than during the previous period.
- The MACD Histogram is lower than during the previous period.
That means:
Trend is falling AND bearish momentum is increasing.
For traders already holding a long position, red can also act as a warning that the bullish impulse has deteriorated.
Blue Bar — Neutral Impulse
Blue occurs whenever the EMA and MACD Histogram disagree.
For example:
- EMA rising but MACD Histogram falling
- EMA falling but MACD Histogram rising
This is actually one of the smartest features of the system.
Rather than forcing the trader into a bullish or bearish opinion at all times, Elder effectively creates a third state:
"The evidence is mixed."
Many traders would be better off trading less frequently when the evidence is contradictory.
Best Elder Impulse System Settings
The traditional Elder Impulse System uses:
Momentum: MACD Histogram using standard MACD settings
For the traditional MACD, those settings are:
12 EMA / 26 EMA / 9-period signal line
You can change the settings, but doing so changes the behavior of the system.
| Adjustment | Effect | Tradeoff |
|---|---|---|
| Faster EMA/MACD | Responds sooner | More false signals |
| Traditional settings | Balanced response | Good starting point |
| Slower EMA/MACD | Filters noise | Signals arrive later |
Rather than searching for a magical setting, I would start with Elder's original configuration and then backtest any changes.
Best Timeframe for the Elder Impulse System
One of the most important ideas in Elder's methodology is multi-timeframe analysis.
Instead of looking at only one chart, the trader first identifies the larger trend and then uses a smaller timeframe to locate an entry.
A useful approximation is:
Examples:
- Trading daily → examine weekly trend
- Trading 60-minute → examine approximately 4-hour trend
- Trading 15-minute → examine approximately hourly trend
The exact ratio does not have to be mathematically perfect.
The important idea is to avoid making a short-term trade without understanding the larger market direction.
Elder Impulse Trading Strategy
I would use Elder Impulse primarily as a filter.
Example Bullish Setup
- The weekly chart is in an established uptrend.
- Move to the daily chart.
- Price pulls back rather than becoming extremely extended.
- The Elder Impulse turns from blue to green.
- Price remains above important support.
- Volume or another independent indicator supports the move.
The green bar isn't creating the trade by itself.
It is confirming that trend and momentum have realigned with the larger bullish direction.
Example Bearish Setup
- The larger timeframe is trending down.
- A temporary rally occurs.
- The smaller timeframe turns red again.
- Price fails near resistance.
That can indicate that bearish trend and momentum have reasserted themselves.
Short selling carries risks that are very different from simply buying shares. Read my guide to short selling before treating red bars as automatic short entries.
How to Exit an Elder Impulse Trade
One weakness of simplistic explanations of Elder Impulse is that they focus entirely on entries.
A trading system isn't complete unless it defines exits.
Possible exit frameworks include:
- Exit when the bullish impulse disappears.
- Exit when the opposite impulse appears.
- Use a predefined stop based on price structure.
- Use a trailing stop during strong trends.
- Exit when support or resistance invalidates the trade.
Notice that these methods can produce very different results.
That is exactly why they should be tested rather than chosen based on a few successful historical examples.
Real Elder Impulse System Example
The chart below shows the Elder Impulse System applied to QQQ.
Rather than viewing every green or red bar as an isolated trade signal, pay attention to how groups of colors develop during different market environments.
Long stretches of the same color typically reflect stronger alignment between trend and momentum.
Rapid green-blue-red-blue switching often indicates exactly the opposite: choppy conditions with weak directional conviction.
When the Elder Impulse System Fails
No trading system works in every market environment.
Elder Impulse can struggle when price moves sideways because both the EMA slope and MACD Histogram can change direction frequently.
That produces rapid sequences such as:
Green → Blue → Red → Blue → Green
This is essentially whipsaw.
The same weakness occurs in many trend-following systems.
Common Elder Impulse Mistakes
- Buying every green bar.
- Shorting every red bar.
- Ignoring the larger timeframe.
- Entering directly into major resistance.
- Using the system during extremely choppy markets.
- Ignoring volume and price structure.
- Having no predefined exit or risk-management rule.
- Changing settings until historical results look perfect.
Elder Impulse vs MACD
The Elder Impulse System includes MACD, but the two are not the same thing.
| MACD | Elder Impulse |
|---|---|
| Measures moving-average momentum relationships | Combines MACD momentum with EMA trend |
| Displays lines and histogram | Converts information into colored price bars |
| Primarily momentum/trend indicator | Designed as a trade-filtering framework |
If you want to understand the momentum component in greater detail, read: MACD Indicator Explained .
How to Improve the Elder Impulse System
The simplest way to improve the framework is to combine it with information that isn't simply another version of the same momentum calculation.
Examples include:
- Volume to examine market participation.
- ADX to estimate trend strength.
- Support and resistance for trade location.
- Higher-timeframe structure for directional context.
The objective is not to keep adding indicators.
It is to combine different types of evidence.
Backtesting the Elder Impulse System
Because Elder Impulse uses objective rules, it is well suited to backtesting.
For example, test:
- Buy when Elder Impulse turns green.
- Require the higher timeframe to be bullish.
- Require ADX to exceed a chosen trend-strength threshold.
- Require price to remain above a longer-term moving average.
- Compare different exit rules.
Then compare the results against buy-and-hold and test them on multiple securities and market environments.
TrendSpider Market Scanner & Strategy Backtesting can be used to test technical trading rules and scan for indicator conditions instead of manually searching charts.
You can also read: How to Create a Winning Stock Trading System .
Disclosure: Some links on this page are affiliate links. I may receive a commission at no additional cost to you.Elder Impulse System FAQ
Who created the Elder Impulse System?
The system was developed by trader and author Alexander Elder.
What indicators does the Elder Impulse System use?
The traditional system combines a 13-period EMA for trend with the MACD Histogram for momentum.
What does a green Elder Impulse bar mean?
It means the 13 EMA is rising and the MACD Histogram is also rising compared with the previous period. Trend and momentum are therefore aligned bullishly.
What does a red Elder Impulse bar mean?
It means the 13 EMA is falling while the MACD Histogram is also declining. This indicates bearish alignment between trend and momentum.
What does a blue Elder Impulse bar mean?
Blue means the EMA and MACD Histogram disagree. The system therefore does not classify the period as a clear bullish or bearish impulse.
What are the best Elder Impulse settings?
The traditional starting point is a 13-period EMA combined with standard MACD settings. Different configurations can be tested, but faster settings usually increase sensitivity and false signals while slower settings react later.
Is the Elder Impulse System profitable?
No indicator configuration can be assumed to be profitable across all securities, timeframes and market environments. Its rules should be tested with realistic entries, exits, transaction costs and risk management.
Can the Elder Impulse System be used for day trading?
Yes, the same logic can be applied to intraday charts. However, shorter timeframes contain more noise, making higher-timeframe confirmation especially important.
Is Elder Impulse better than MACD?
It isn't really an either/or comparison because Elder Impulse actually uses the MACD Histogram. Elder adds EMA trend direction to the momentum information provided by MACD.
Conclusion
The strength of the Elder Impulse System is not that it magically predicts the next market move.
Its strength is that it forces traders to ask two useful questions at the same time:
- What direction is the trend moving?
- Is momentum supporting that trend?
When both agree, the system produces a bullish or bearish impulse. When they disagree, it tells you that conditions are mixed.
That simplicity makes Elder Impulse an excellent framework for learning how a rules-based trading system works.
I would use it primarily as a market and entry filter, combine it with higher-timeframe analysis and price structure, define risk before entering, and backtest the rules rather than assuming every green or red bar is profitable.