Elder’s Market Thermometer – What It Is & How to Trade with It

Elder’s Market Thermometer – What It Is & How to Trade with It

What is Elder’s Market Thermometer?

Elder’s Market Thermometer is a technical analysis tool designed to track the number of intraday highs and lows that exceed the previous day’s range. It is based on the idea that market temperature (volatility) fluctuates based on the number of extreme price movements within a specific period. This helps traders gauge market strength, trend reversals, and breakout potential.

The Elder’s Market Thermometer formula tracks:

• The number of intraday highs that exceed the previous day’s high.
• The number of intraday lows that fall below the previous day’s low.
• A running total over a chosen period to assess market momentum.

Key Features of Elder’s Market Thermometer

• Measures market volatility based on intraday highs and lows.
• Helps traders identify strong breakouts and trend reversals.
• Works well in volatile markets and trend-following strategies.

How to Use Elder’s Market Thermometer in Forex Trading

1. Market Volatility Strategy

Elder’s Market Thermometer helps traders identify volatility trends:

• High readings indicate strong momentum and potential trend continuation.
• Low readings suggest consolidation or reduced volatility, signaling a possible breakout.

2. Trend Confirmation Strategy

Traders use Elder’s Market Thermometer to validate market trends:

• Buy when: The number of new intraday highs is increasing, indicating strong bullish momentum.
• Sell when: The number of new intraday lows is rising, confirming strong bearish momentum.

3. Reversal and Exhaustion Strategy

Market extremes often signal trend reversals:

• Buy when: The Thermometer shows a peak in intraday lows, suggesting sellers are exhausting.
• Sell when: The Thermometer peaks with high intraday highs, indicating overextension of buying pressure.

4. Elder’s Market Thermometer with Moving Averages

Pairing Elder’s Market Thermometer with a moving average (e.g., 50 EMA) helps filter false signals:

• Buy when: Thermometer readings are rising, and price is above the 50 EMA.
• Sell when: Thermometer readings are falling, and price is below the 50 EMA.

Pros and Cons of Using Elder’s Market Thermometer

✅ Pros:

• Helps detect market volatility and trading opportunities.
• Useful for identifying trend strength and reversals.
• Works well with trend-following and breakout strategies.

❌ Cons:

• Less effective in low-volatility markets.
• Requires confirmation from other indicators for accuracy.

Final Thoughts

Elder’s Market Thermometer is a powerful tool for measuring market volatility and trend strength, helping traders confirm trends, anticipate breakouts, and detect reversals. When combined with moving averages or support/resistance levels, it enhances trade accuracy and decision-making.