Balance of Power Commodity Trading Technical Analysis & Balance of Power Trading Signals

Created by Igor Livshin

Balance of Power indicator measures the strength of the bulls versus bears by assessing ability of each to push commodity price to extreme levels.

Commodities Trading Technical Analysis & How to Generate Trading Signals

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

The center is marked as a zero line, areas oscillating above or below are used to generate commodity 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 & Sell Trading Signals

Buy Signal

When the BOP crosses above zero a buy signal is given.

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

Sell Signal

When the BOP crosses below the zero a sell signal is given.

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

Sell & Buy Trading Signals

Divergence Commodities Trading

In commodity trading, divergences between the BOP and commodity price can be used to effectively spotting potential reversal &/or trend continuation points in the commodity price movement. There are several types of divergences:

Classic Divergence - Commodity Trading Trend reversal commodity trading signal

Hidden Divergence - Commodity Trading Trend continuation

Commodity Trading Overbought/Oversold Conditions

This Balance of Power can be used to identify potentially overbought and over-sold conditions in commodity price movement.

• Overbought-Oversold areas can be used to provide an early warning signal for potential commodity trend reversals.
• These levels are generated when the indicator clusters its tops and bottoms thus setting up the overbought and oversold levels around those values.

However, commodity price may also stay at these over bought and oversold levels and continue heading in that direction for a while and thus it's always good to wait until the BOP crosses over the Zero mark.

From the commodities trading example illustrated and shown below, even though the Balance of Power showed the commodity price was oversold, price continued moving downwards until the indicator crossed over to above Zero.

Technical Analysis in Commodity Trading