Key Takeaways
Direct answer: The Elder Impulse System, developed by Dr. Alexander Elder, combines the slope of a 13-period exponential moving average (trend direction) with the slope of the MACD-Histogram (momentum direction) and uses that combination to color each candle, rather than plotting a separate indicator line.
- Green candle = both the 13-EMA and MACD-Histogram are rising (bullish impulse).
- Red candle = both the 13-EMA and MACD-Histogram are falling (bearish impulse).
- Blue candle = the EMA and MACD-Histogram disagree — one rising while the other falls — meaning no clear impulse.
- The Impulse System is a candle-coloring overlay applied to an existing candlestick series, not a standalone chart-construction method.
- Traditional Impulse System trading rules treat blue as a caution signal, but that's a described convention with real limitations, not a validated trading edge.
What Does the Elder Impulse System Combine?
The Elder Impulse System was developed by Dr. Alexander Elder, a trader and author known for combining multiple existing indicators into a single visual read rather than inventing new indicator math. The Impulse System does exactly that: it takes two indicators most traders already have on their chart — a 13-period exponential moving average (EMA) and the MACD-Histogram — and uses the direction each one is currently moving to decide what color to paint each candle.
This is why the Impulse System belongs in the "alternative charts" cluster alongside chart-construction methods like Renko and Point and Figure, but works differently from all of them: it doesn't change how bars are built, spaced, or filtered. It's an overlay coloring rule applied on top of an existing candlestick chart, most commonly standard candles, though — like the swing charts covered separately — it can be applied to other bar types too, including Heikin-Ashi (see below).
The Two Inputs
13-period EMA slope — is the 13-EMA higher than its own prior reading (rising, indicating trend direction is up) or lower (falling, indicating trend direction is down)?
MACD-Histogram slope — is the MACD-Histogram (the difference between the MACD line and its signal line, typically plotted as a bar histogram) higher than its own prior reading (rising, indicating momentum is building) or lower (falling, indicating momentum is fading)?
What Do the Green, Red, and Blue Candle Colors Mean?
The coloring rule is a direct combination of the two slopes above:
| 13-EMA slope | MACD-Histogram slope | Candle color | Traditional interpretation |
|---|---|---|---|
| Rising | Rising | Green | Bullish impulse — trend and momentum agree upward |
| Falling | Falling | Red | Bearish impulse — trend and momentum agree downward |
| Rising | Falling | Blue | No clear impulse — trend and momentum disagree |
| Falling | Rising | Blue | No clear impulse — trend and momentum disagree |
The blue (neutral) color covers both disagreement cases the same way — the system only records whether the two inputs agree, not which one is currently "winning." In the traditional Impulse System trading rules Elder described, a blue candle is often treated as a signal to avoid opening a new position in the direction of the (disagreeing) trend, on the reasoning that trend and momentum aren't yet confirming each other. This is worth stating plainly as the traditional interpretation, not a reliable trading rule — the system is only measuring whether two specific indicators, each with their own lookback period and their own well-known lag, happen to agree at a given moment. Agreement or disagreement between two lagging indicators does not, by itself, predict what price will do next.
Common Mistake
The common mistake is treating "green" as an unconditional buy signal and "red" as an unconditional sell signal. The Impulse System's original design describes it as a filter that flags when trend and momentum agree, narrowing the set of bars where a trend-following entry might make sense within a trader's broader plan — it was never intended as a complete, standalone entry-and-exit system on its own.
Worked Example: Classifying Four Synthetic Candles
Illustrative, hand-verified classifications — not live market data or a real indicator calculation.
Rather than compute a full EMA and MACD-Histogram series, this example stipulates each candle's EMA-slope and MACD-Histogram-slope directions directly and applies the coloring rule from the table above.
| Candle | 13-EMA slope | MACD-Histogram slope | Impulse color |
|---|---|---|---|
| Candle A | Rising | Rising | Green |
| Candle B | Falling | Falling | Red |
| Candle C | Rising | Falling | Blue |
| Candle D | Falling | Rising | Blue |
Candle A is green because both stated inputs are rising: the 13-EMA is rising (trend up) and the MACD-Histogram is rising (momentum building), so the two agree in the bullish direction. Candle B is red for the mirror-image reason: both the EMA and MACD-Histogram are falling, so trend and momentum agree in the bearish direction. Candle C is blue despite the EMA rising, because the MACD-Histogram is falling at the same time — the two inputs disagree, so no clear impulse is recorded regardless of which one looks more bullish on its own. Candle D is blue for the same disagreement reason in the opposite combination: a falling EMA (bearish trend) paired with a rising MACD-Histogram (building momentum) still resolves to blue, because the rule only checks agreement, not which single indicator is stronger.
Common Mistake
The common mistake when working through cases like Candle D is assuming the rising MACD-Histogram should "win" and produce green, or that the falling EMA should "win" and produce red. The Impulse System's rule has no tie-breaker between the two inputs — any disagreement resolves to blue by design, which is exactly what makes it a distinct third state rather than a simple two-way bullish/bearish flag.
How Does the Impulse System Relate to Other Alternative Charts?
The Impulse System's two underlying indicators — the EMA and the MACD-Histogram — are covered in full, including their own formulas and independent limitations, in Swoopr's technical indicators guide. Understanding each indicator on its own is a prerequisite for understanding what agreement or disagreement between them actually means; the Impulse System doesn't introduce new math, it only defines a coloring rule on top of indicators traders may already use independently.
Because the coloring rule only needs a candle's own EMA and MACD-Histogram readings, it can technically be applied to any candle series, including Heikin-Ashi candles instead of standard ones. In practice the Impulse System is most commonly shown on standard candlesticks, since that's how it was originally presented — applying it to Heikin-Ashi's already-smoothed price data changes what the EMA and MACD-Histogram are calculated from, which can shift how often the color changes compared to running the same rule on standard candles.
Misconceptions Versus Reality
| Misconception | Reality |
|---|---|
| The Elder Impulse System is a standalone chart-construction method | It's a candle-coloring overlay built from two existing indicators (13-EMA slope, MACD-Histogram slope), typically applied on top of standard candlesticks |
| A blue candle means the trend has reversed | Blue only means the two inputs currently disagree on direction — it says nothing about whether either input will keep moving the way it currently is, or reverse |
| Green always means "buy" and red always means "sell" | The colors describe agreement between two lagging indicators, not a validated entry/exit signal; the traditional trading rules use color as one input among several, not a standalone trigger |
| The Impulse System only works on standard candlesticks | The coloring rule only requires the EMA and MACD-Histogram readings, so it can be computed on any candle series, including Heikin-Ashi, though standard candles are the most common presentation |
Risks, Limitations, and Exceptions
- Both the 13-EMA and the MACD-Histogram are lagging indicators derived from past price data; the Impulse System's color reflects that lag and does not lead price.
- The blue "no clear impulse" state is traditionally treated as a caution signal in Elder's original trading rules, but this guide describes that as the traditional interpretation, not a validated or reliable trading rule.
- Changing the EMA period (from 13) or the MACD-Histogram's own default parameters changes how often the color flips, in the same way changing an N-bar swing setting changes swing points — the coloring is parameter-dependent, not fixed.
- A candle's color can flip from one bar to the next even without a large price move, if either input's slope is close to flat and crosses zero.
- The worked example in this guide stipulates slope directions directly rather than computing a real 13-EMA and MACD-Histogram series from price data, and is illustrative only.
Frequently Asked Questions
What Does the Elder Impulse System Combine?
The Elder Impulse System, developed by Dr. Alexander Elder, combines the slope of a 13-period exponential moving average (trend direction) with the slope of the MACD-Histogram (momentum direction) and uses that combination to color each candle on the chart, rather than plotting a separate indicator line.
What Do the Green, Red, and Blue Candle Colors Mean?
A candle is colored green when both the 13-period EMA and the MACD-Histogram are rising (a bullish impulse), red when both are falling (a bearish impulse), and blue when the two disagree — one rising while the other falls — indicating no clear impulse in either direction.
Is the Blue Impulse Color a Reliable No-Trade Signal?
Traditionally, some Elder Impulse trading rules treat a blue candle as a caution signal suggesting new trend-following entries be avoided until the EMA and MACD-Histogram slopes agree again. This is a described trading convention, not a reliable rule — the system only measures whether two specific indicators agree on direction over their own lookback periods, and disagreement between them does not guarantee anything about subsequent price action.
Sources and Methodology
The Elder Impulse System is a publicly documented technical-analysis method attributed to Dr. Alexander Elder, built from two widely used, independently documented indicators (the exponential moving average and MACD-Histogram). Key reference sources include:
- CME Group — Technical Analysis Basics: cmegroup.com/education/courses/technical-analysis.html — exchange-published education covering moving-average and momentum-indicator fundamentals this guide builds on.
- CFA Institute — Technical Analysis Reading Materials: cfainstitute.org — Technical Analysis — professional-standard coverage of trend and momentum indicator methodology, including moving averages and oscillators.
The four-candle worked example in this guide uses clearly labeled, stipulated illustrative inputs, not a computed indicator series from live market data. This content was reviewed by the Swoopr Editorial Team in August 2026.
Related Reading
- Alternative Chart Types — the parent hub for this content group, covering every non-standard chart-construction and overlay method.
- Technical Indicators — full coverage of the EMA and MACD, the two underlying indicators the Impulse System's coloring rule is built from.
- Heikin-Ashi — a smoothed candlestick type the Impulse System's coloring rule can also be applied to, alongside standard candlesticks.
- Swing Charts — another overlay method, applied to identify structural turning points rather than color candles.