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.

BOP Trading Indicator, Balance of Power Stock Analysis - Balance of Power Indicator

Stock Analysis and Generating Signals

When using this technical indicator, the zero mark crossovers are used to generate signals.

Center is marked as zero line, levels oscillating above/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 Trading Signals

Buy Signal

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

Also when the Balance of Power BOP is rising, the market is in an upwards trend, some traders use this as a buy signal but it's best to wait for the confirmation by the indicator moving above zero line. As this will be a buy signal in bearish territory and this type of market trading signal is more likely to be a whipsaw fakeout.

Sell Signal

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

Also when the Balance of Power BOP is declining/falling, the market is in a downwards trend, some traders use this as a sell signal but it's best to wait and chill for a confirmation signal by moving below the zero line because this will be a sell signal in bullish territory and this type of market trading signal is more likely to be a fake out.

Balance of Power (BOP) Indicator, Balance of Power (BOP) Indices Analysis - Balance of Power (BOP) Indicator

Sell & Buy Trading Signals

Divergence Trading

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

Classic Divergence Setup - Trend reversal signal setup

Hidden Divergence Trading Setup - Trend continuation

Indices Overbought Oversold Conditions

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

Overbought Oversold levels can be used to give an early warning for potential price trend reversals.
These levels are derived & generated when indicator clusters its tops and bottoms thus setting up the overbought and over-sold levels around those values.

However, stock price might also stay at these overbought & oversold levels & continue heading in that direction for some length of time and thus it's always good to wait until the BOP crosses over Zero mark.

From the illustration explained & shown below, even though the BOP showed the price was over-sold, stock trading price continued heading and moving downward until the time when tis indicator crossed above the Zero Mark.

Balance of Power (BOP) Indicator, BOP Indices Analysis - Balance of Power Trading Indicator

Analysis in Indices Trade

Learn More Tutorials and Lessons:

Trade Stock Indices