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