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Trading-Doctor Alexander Elder

The Impulse trading system was designed by Dr. Alexander Elder and presented in his book "Come Into My Trading Room". According to Dr. Elder, the system "identifies turning points where a trend accelerates or decelerates". The Impulse system is based on two indicators, a 13-day exponential moving average and the MACD histogram.

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The Impulse system

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Trader Dr. Alexander Elder

The advantages the Impulse trading system

  • The Elder Impulse system can be used on all timeframes.
  • The system provides instant tradable trading setups.
  • Traders can use the Impulse system to confirm bullish or bearish setups.
  • In addition to trading setups, the Elder Impulse system can be used to prevent bad trades by consulting it before entering a trade.
  • The Impulse system can also be used to predict patterns or reversals.

In Alexander Elder's original system, the moving average identifies the trend, while the MACD histogram measures the momentum. As a result, the momentum system combines trend following and momentum to identify tradable signals. The NanoTrader of the broker WH SelfInvest has automated the system thanks to an express function so that it can be called up for any market with one click.

Opening and closing a position

Trading with Dr Alexander Elder's Impulse system.

A buy signal occurs when the long-term trend is considered bullish and the Elder Impulse system becomes bullish, based on the medium-term trend. In other words, the weekly chart must show a clear upward trend for a buy signal to be valid on the daily chart.

A sell signal occurs when the long-term trend is considered bearish and the Elder Impulse system is bearish, basedon the medium-term trend. The weekly chart should show a clear downward trend for a sell signal to be valid on the daily chart.

However, the Elder Impulse system was developed to capture relatively short price movements. Elder notes the following, "The Impulse System encourages you to enter cautiously but act quickly. This is the professional approach to trading, the absolute opposite of the amateur's style. Beginners jump into trades without thinking too much, taking forever to get out. They hope and wait for the market to turn in their direction."


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A long trade using the Impulse system

Results of Elder`s Impulse System.

In this example in the Mini Nasdaq future, the system identified a long signal on 3 May 2018. The system went long at a price of 6666.00 (green arrow bottom left) On 25 June, the system closed the trade at a price of 7069.50 (blue arrow top right). The total profit per contract was $8070.

A short sell trade using the Impulse system

Results from Dr Elder`s trading strategy described in his book.

On 15 August, the system generated a short signal and sold short at a price of 7380. This trade was closed with a loss of $1058.

According to Dr. Elder's rules, however, the trade would not have been valid. Indeed, the Nasdaq100 was in a clear upward trend at the time. In this circumstance short sell positions are not considered. Traders can ignore bullish setups if the impulse system is not in fully-bullish mode (congruence between signal and overriding trend) and ignore bearish signals if the system is not in fully-bearish mode.

Conclusion

The Elder Impulse system can be used on all timeframes. The trade should be in line with the main trend. Elder recommends you choose your preferred trading timeframe. Multiply this timeframe by five to get your long-term timeframe. Traders who use daily charts as their intermediate time frame can use weekly charts as the long-term time frame.

The choice is not so clear for shorter or longer time frames. So a little self-judgement is required here. Traders who use 10-minute charts to calculate their "medium" time frame can use 60-minute charts for their "long-term" time frame. Investors using weekly charts can base the main trend on monthly charts.

This article covers the basics of the Impulse system. The system is available for free in the NanoTrader platform. The best way to learn is by opening a trading account and using the platform's phenomenal playback function.


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