BOP Analysis & Balance of Power Trading Signals

Developed by Igor Livshin

BOP indicator measures the strength of the bulls versus the bears by assessing ability of each to push price to extremes zones.

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Stock Analysis & Generating Trade Signals

When using this indicator, the zero line cross-overs are used to generate signals.

Center is marked as zero line, levels oscillating above or below are used to generate signals.

Buy - The scale is labeled from 0 to +100 for bullish market movements

Sell - The scale is marked from Zero to -100 for bearish market movements

How to Generate Buy & Sell Signals

Buy Signal

When BOP crosses above the 0 a buy stock trade signal is given.

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

Sell Signal

When the BOP crosses below the 0 a sell stock trade signal is given.

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

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Sell and Buy Trading Signals

Divergence Trading

In trading, divergences between the BOP and stock trading price can be effectively used to identify potential reversal &/or trend continuation areas in the price movement. There are various types of divergences:

Classic Divergence - Trend reversal signal

Hidden Divergence - Trend continuation

Indices Overbought Oversold Conditions

This BOP can be used to identify potentially overbought & oversold conditions in price movement.

Overbought-Oversold levels 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 and oversold levels around those values.

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

From the example explained and illustrated below, even though the BOP showed the price was oversold, stock trading price continued moving downward til the indicator crossed over to above Zero.