Balance of Power Gold Trading Analysis and Balance of Power Gold Trading Signals
Developed by Igor Livshin
Balance of Power measures the strength of the bulls versus the bears by assessing the ability of each to push xauusd price to extreme levels.
XAUUSD Trading Analysis and Generating XAUUSD Trading Signals
When using this technical indicator, the zero line crossovers are used to generate gold signals.
The center is marked as the zero line, levels oscillating above or below are used to generate gold signals.
Buy - The scale is marked from Zero to +100 for bullish market movements
Sell - The scale is marked from Zero to -100 for bearish market movements
How to Generate Buy and Sell XAUUSD Trading Signals
When the BOP crosses above zero a buy gold signal is given.
Also when the BOP is rising, the xauusd market is in an upwards trend, some traders use this as a buy gold signal but it is best to wait for the confirmation by moving above the zero mark. As this will be a buy gold signal in bearish territory and this type of signal is more likely to be a gold trading whipsaw.
When the BOP crosses below zero a sell gold signal is given.
Also when the BOP is declining, the xauusd market is in a downwards trend, some traders use this as a sell gold signal but it is best to wait for a confirmation by moving below the zero mark because this will be a sell gold signal in bullish territory and this type of signal is more likely to be a gold trading whipsaw.
Sell and Buy Gold Trading Signals
Divergence XAUUSD Trading
In gold trading, divergences between the BOP and xauusd price can be used to effectively identifying potential reversal and/or gold trend continuation points in the xauusd price movement. There are several types of divergences:
Classic Divergence - Gold Trend reversal gold trading signal
Hidden Divergence - Gold Trend continuation
Trading Overbought/Oversold Conditions
This Balance of Power can be used to identify potentially overbought and oversold conditions in xauusd price movement.
- Overbought/Oversold levels can be used to provide an early warning for potential gold trend reversals.
- These levels are generated when the indicator clusters its tops and bottoms thus setting up the overbought and oversold levels around those values.
However, xauusd price may also stay at these overbought and oversold levels and continue moving in that direction for a while and thus it's always good to wait until the BOP crosses over the Zero mark.
From the xauusd trading example illustrated and explained below, even though the Balance of Power showed the xauusd price was oversold, xauusd price continued moving downwards until the indicator crossed over to above Zero.