BOP Analysis & Balance of Power Trading Signals
Created by Igor Livshin
The Balance of Power (BOP) Indicator measures bull and bear strength by evaluating their ability to push prices toward extreme zones.
Stock Analysis and Generating Signals
When utilizing this technical analysis instrument, crossovers occurring at the zero line are the primary triggers for signal generation.
The midpoint is designated as the Zero line: levels situated above or below it are employed for generating 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 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 region 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.
When the Balance of Power indicator starts to go down, which means the market might go down, some traders think it's time to sell. But, it's usually a good idea to wait for another signal that confirms it, like the indicator going below the zero line. This makes the signal stronger and avoids wrong signals when the market is going up.
Sell & Buy Trading Signals
Divergence Trading
In trading, divergences between BOP and stock price spot potential reversals or trend continuations. Different divergence types exist.
Classic Divergence Setup - Trend reversal signal setup
Hidden Divergence Trading Setup - Trend continuation
Indices Overbought Oversold Conditions
The Balance of Power (BOP) can facilitate the identification of potentially overbought and oversold price conditions.
- 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.
But sometimes, a stock can just hang out at those overbought or oversold levels and keep moving in that direction for a while. So, it's smart to wait until the Balance of Power crosses over the zero mark before jumping in.
From the picture explained below, even though the BOP said the price was too low, the price kept going down until the indicator went above the Zero Mark.
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