Alexander Elder is the author of two bestselling trading books, Trading for a Living  and Come into my Trading Room. He is also known for many trading tactics including the Triple Screen Trading and the Impulse System.

I have come across many recommendations of his books for beginning traders once and again. And I would personally recommend them as well.

Being a trader with a background in psychology, he gives unique insights into the world of trading in a concise and readable way.

Without further ado, lets introduce the Impulse System by Alexander Elder. This system combines a relatively short EMA with the standard MACD to find market momentum. When the two indicators align, they show an impulse move.

Alexander Elder advised that we should use the Impulse System on a higher time-frame to enhance the trading setup.

Trading Rules Impulse System

Long Trading Setup

1. 13-period EMA rising
2. MACD(12,26,9) histogram rising

Short Trading Setup

1. 13-period EMA falling
2. MACD(12,26,9) histogram falling

Impulse System Example Trades

Winning Trade Impulse System

This 6J chart is in need of explanation. Bars with positive impulse are green. Bars with negative impulse are red. Blue bars mean that EMA and MACD are disagreeing. (I must thank Wessel on Ninjatrader forum for sharing this indicator.)

I also coded a separate indicator for the background color to show the Impulse System on a higher time-frame. Our trading time-frame is 20-minute. Alexander Elder recommends a factor of five. So the background reflects the impulse on the 100-minute time-frame.

1. EMA and MACD on the higher time-frame were both rising.
2. There were multiple buy signals in our trading time-frame from the Impulse System.
3. For this example, we are focusing on the signal marked by the green arrow. That trading setup had a high chance of success because it tested the previous swing low, but did not affect the momentum on the higher time-frame.

Losing Trade Impulse System

This is a daily chart of Hewlett-Packard. The higher time-frame uses weekly bars.

1. A bearish triple top foreshadowed this trade.
2. However, prices stalled at the last swing low. This might have contributed to the failure of the short signal from the Impulse System.
3. As shown by the blue bar, price lost momentum right after entry. Given that the Impulse System is a momentum trade, we should take that as a signal to exit earlier and limit our loss.

Review Trading The Impulse System

Combining multiple time-frame analysis with the Impulse System produces a solid momentum trading strategy.

However, some trading platforms are not friendly to multiple time-frame analysis. In that case, you can pay attention to pullbacks that do not overlap with the EMA.

For instance, price bars are above the EMA and they start to retrace down. However, throughout the pullback, price bars stay above the EMA. It means that the bullish momentum is strong. Given that context, it is likely that the higher time-frame supports the bullish impulse.

To improve on this trading strategy, you can seek confirmation from support and resistance like our examples above.

You should definitely read Alexander Elders explanation on the Impulse System in Come into my Trading Room. if you havent already.

If momentum trading is your cup of tea, you should also take a look at the 5-minute Forex Momo trading setup. which also uses EMA and MACD. It will be an interesting exercise to compare the two trading strategies, but thats for another day.