Balance of Power Analysis & BOP Signals
Developed by Igor Livshin
BOP 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 signals.
Center is marked as zero line, levels oscillating above or below are used to generate 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 Signal
When the BOP crosses above zero a buy signal is given.
Also when the BOP is rising, the market is in an upward trend, some traders use this as a buy signal but it's best to wait for the confirmation by 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 Signal
When BOP crosses below zero a sell signal is given.
Also when the 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 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 - Trend reversal signal
Hidden Divergence - Trend continuation
FX Trading Overbought and Oversold Conditions
This BOP can be used to identify potentially overbought & 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 and bottoms thus setting up the overbought and oversold levels around those values.
However, price may also stay at these overbought & oversold levels and continue moving in that direction for a while & thus its always good to wait until the BOP crosses over the Zero mark.
From the example below, though the BOP showed the price was oversold, price continued heading downwards til the indicator crossed over to above Zero.
Analysis in Forex Trading
