Elephant is an indicator based on moving averages, and therefore it is a trend indicator. Its main virtue is to help us detect moments of purchase with very visual patterns.
Initially, the indicator consisted of several lines, some of which form pairs, filling the area they form with different colors depending on the situation:
1.- Fast Averages: (pairs 1-2 and 1-3) They are sensitive to movements in the very short term. 1-3 have orange color, 1-2 green color.
2.- Slow Averages (pairs 1-5 and 5-6). They reflect longer term changes especially line 5-6 (purple). Line 1-5 is painted blue.
3.- Main Media. It is the average 1-4.
4.- Line 0
Subsequently, averages based on even longer periods (LT means) were added, giving rise to the current appearance of the indicator:
How is it interpreted?
When the LT means are below 0, we can say that we are in a bearish situation. If they are above, in a growth situation.
Long-term averages (LT) logically respond more slowly, so we can use the pair of slow averages (1-5 and 5-6) to detect trend changes earlier. A fall of the average 1-5 below the 0 line accompanied by the fall of the 5-6, will quickly show us a situation of falling price. On the contrary, a rise of the 1-5 above the 5-6 will be indicative of an upward movement.
When LT means are well above 0, we can expect corrections, while when they are well below 0, we can expect upside rebounds.
Regarding the fast averages, they give us the best input signals when they form the "fang" pattern, which is colored yellow. In a lateral or bullish situation, the appearance of a "fang" will give us the possibility of buying.
During a bearish situation, another pattern will appear, which we have called "harlequin". This pattern appears as a bag, containing a "fang" pattern, but we see that more colors are also drawn underneath. Average 1-5 shown far below rebounds initiating growth. The two fast averages and the main average are also growing.
In a fall, we will wait for the formation of the second or third harlequin pattern, or preferably we will wait for a harlequin pattern to form in a higher position than the previous one, as it appears in the following image, in which a divergence with respect to the price, which has made a lower minimum. Another good entrance will be the one that is formed in a double floor: the fang pattern appears.
We have commented that in a very bullish trend, most of the "fang" patterns could be a successful purchase that will allow us to join the trend. The following graph serves as an example:
Elephant indicator, with all its power
So where does its name come from? We noticed the similarity of the patterns drawn by the indicator with the figure of an elephant. Initially, we drew the eyes manually, which allowed us to better visualize the figure and helped us to wait patiently for the moment of purchase. Currently, the indicator automatically draws the elephants' eyes. If we don't touch the settings, it will do so by default.
The elephant pattern is made up of three elements:
1.- Eye of the elephant. At first, we manually drew the eye. In newer versions of the indicator the eye is drawn automatically. We should not look for purchases here. Just wait.
2.- Tusk of the elephant. It is drawn by the fastest averages, showing a short-term uptrend. In a lateral or bullish trend it can be a good time to buy.
3.- Trunk of the elephant. It always follows the elephant's eye and tusk, and is made up of the longest stockings.
The logic of this pattern is clear: We always look to buy after a price drop, either during an uptrend or at the end of a steep decline.
When an eye appears, we always expect the later appearance of the tusk. If we want further confirmation, we should wait for the averages 1-4 (in black) and 1-5 (blue) to rise. The lifting of the longest averages (of the trunk) indicates the change in trend.
This method helps us control our impulses, always anticipating the ideal moment of purchase. It gives very good results both when it comes to "catching the bottom" of a fall and when it comes to joining an uptrend already formed.
Optionally, we can make the indicator draw signals in the areas of interest, and color the bottom of the indicator in these areas.
These signals must always be taken with caution, evaluating the price action, and visually confirming the complete appearance of the patterns. These signals by no means show all the buying zones, and can sometimes give false entries.
We can confirm the operations with the signals given by other indicators, such as the EP Zenith and EP Change Index, and we recommend always to be aware of the trend lines, supports and resistances.
There are different types of "Elephants" that should be known to get the most out of the indicator. A PDF can be downloaded explaining some of these types:
Elephant Indicator is highly effective in volatile assets, and should take its signals with much more caution in very flat lateral trends.
The approach of all its averages can be taken as an early sign of a more abrupt movement, as it can happen for example with Bollinger Bands. On the contrary, long averages very far from the rest indicate a greater risk of correction.