Balance of Power Analysis & Balance of Power Signals

Created by Igor Livshin

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

Balance of Power (BOP) Trading Indicator, Balance of Power Balance of Power Indicator - Balance of Power Indicator Explained

XAUUSD Analysis and How to Generate Signals

When using this technical indicator, the zero line cross-overs are used to generate trading signals.

Center is marked as the zero line, levels oscillating above or below are used to generate trading 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 Trade Signal

When Balance of Power (BOP) crosses above zero mark a buy signal is given.

Also when the Balance of Power is rising, the market is in an upward 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 whip-saw.

Sell Trading Signal

When Balance of Power(BOP) crosses below zero mark a sell 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 & this type of trading signal is more likely to be a whipsaw.

Balance of Power (BOP) Trading Indicator, Balance of Power Balance of Power Indicator - Balance of Power Technical Indicator

Sell and Buy Trading Signals

Divergence Gold

In trading, divergences between the BOP and price can be effectively used to identify potential market reversal and/or trend continuation levels in the price movement. There are different 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 & over-sold 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 & bottoms thus setting up the over-bought and over-sold levels around those values.

However, price might also stay at these over bought & oversold levels & continue heading in that particular 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 (BOP) showed the price was over-sold, price continued moving downward until the technical indicator crossed over to above Zero.

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Analysis in XAUUSD Trading

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