Balance of Power Analysis & BOP Signals
Developed by Igor Livshin
BOP trading indicator measures the strength of the bulls versus the bears by assessing ability of each to push price to extreme levels.
FX Analysis & How to Generate Signals
When using this technical indicator, the zero line cross-overs are used to generate trade signals.
Center is marked as zero line, levels oscillating above or below are used to generate trading 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 Trade Signal
When the Balance of Power (BOP) crosses above the zero mark a buy signal is given.
Also when the Balance of Power (BOP) is rising, the market is in an upward trend, some traders use this as a buy trade signal but it's best to wait for the confirmation by trading indicator moving above zero mark. As this will be a buy signal in bearish territory and this type of signal is more likely to be a whipsaw fakeout.
Sell Trading Signal
When Balance of Power BOP crosses below zero mark a sell trade signal is given.
Also when the Balance of Power BOP is declining, the 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 signal is more likely to be a fake out.
Sell & Buy Signals
Divergence Trading
In trading, divergences between the BOP & price can be used to effectively spotting potential reversal &/or trend continuation points in currency movement. There are different types of divergences:
Classic Divergence Setup - Trend reversal signal
Hidden Divergence Setup - Trend continuation
FX Trading Overbought and Oversold Conditions
This BOP can be used to identify potentially overbought & oversold conditions in price movement.
- Overbought Over-sold 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 over-sold levels around those values.
However, price may also stay at these overbought & oversold levels and continue heading in that particular direction for a while & thus its always good to wait until the Balance of Power (BOP) crosses over the Zero mark.
From the example below, though the Balance of Power BOP showed the price was oversold, price continued heading downwards til the technical indicator crossed over to above Zero.
Analysis in Forex Trading
Study More Lessons and Topics:
- How Can I Use Bulls Power Technical Indicator in Trading?
- Reversal Chart Patterns Double Top & Double Bottoms XAU USD Patterns
- What Time Does S&P500 Stock Index Open?
- MACD Hidden Bullish & Gold Hidden Bearish Trade Divergence Setups
- How to Calculate XAU/USD Margin Requirement for 1:50 Gold Leverage
- SPX500 Strategies List & Best SPX Strategies to Trade SPX
- 1:100 Leverage
- What is Relative Vigor Index RVI Indicator?
