Balance of Power Analysis & Balance of Power Signals

Developed by Igor Livshin

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

XAUUSD Analysis and How to Generate Signals

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

Center is marked as the zero line, areas oscillating above or below are used to generate 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 and Sell Signals

Buy Signal

When BOP crosses above zero a buy signal is given.

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

Sell Signal

When BOP crosses below zero a sell 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 is best to wait for a confirmation by moving below the zero mark because this will be a sell signal in bullish territory & this type of trading signal is more likely to be a whipsaw.

Sell and Buy Signals

Divergence XAUUSD

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

Classic Divergence - XAUUSD Trend reversal signal

Hidden Divergence - XAUUSD Trend continuation

Gold Overbought/Oversold Conditions

This Balance of Power can be used to identify potentially overbought and 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 & bottoms thus setting up the overbought & oversold levels around those values.

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

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

Analysis in XAUUSD Trading