Balance of Power Trading Analysis and Balance of Power Trading Signals

Created by Igor Livshin

Balance of Power indicator measures the strength of the bulls versus bears by assessing ability of each to push xauusd price to extreme levels.

XAUUSD Analysis and Generating Trading Signals

When using this indicator, the zero line crossovers are used to generate trading signals.

Center is marked as a zero line, levels oscillating above or below are used to generate trading 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 & Sell Trading Signals

Buy Signal

When the BOP crosses above zero a buy trading signal is given.

Also when the BOP is rising, the xauusd market is in an up-ward trend, some traders use this as a buy trading signal but it's best to wait for the confirmation by the indicator moving above the zero mark. As this will be a buy trading signal in a bearish territory & this type of signal is more likely to be a gold trading whipsaw.

Sell Signal

When the BOP crosses below the zero a sell signal is given.

Also when the BOP is declining, the xauusd market is in a downwards trend, some traders use this as a sell signal but it's best to wait for a confirmation by moving below the zero mark because this will be a sell signal in bullish territory and this type of trading signal is more likely to be a gold trading whipsaw.

Sell and Buy Trading Signals

Divergence XAUUSD Trading

In gold trading, divergences between the BOP and xauusd price can be used to effectively spotting potential reversal &/or trend continuation points in xauusd price movement. There are several types of divergences:

Classic Divergence - Gold Trend reversal trading signal

Hidden Divergence - Gold Trend continuation

Gold Trading Overbought-Oversold Conditions

This Balance of Power can be used to identify potentially overbought and oversold conditions in xauusd price movement.

• Overbought-Oversold areas can be used to provide an early signal for potential trend reversals.
• These levels are generated when indicator clusters its tops and bottoms thus setting up the overbought & oversold levels around those values.

However, price might also stay at these overbought & oversold levels and continue heading in that direction for a while & thus it is always good to wait until the BOP crosses over the Zero mark.

From the xauusd trading example shown & described below, even though the Balance of Power showed the xauusd price was oversold, price continued moving downwards until indicator crossed over to above Zero.

Technical Analysis in XAUUSD Trading