Balance of Power Analysis and BOP Signals
Developed by Igor Livshin
BOP indicator measures the momentum of bulls vs bears by assessing the capability of each to drive price to extreme points.
Forex Analysis and How to Generate Signals
When using this indicator, zero line cross-overs are used to generate trade signals.
Center is labeled and 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 movements
Sell - The scale is marked and tagged from Zero to -100 for bearish movements
How to Generate Buy & Sell Signals
Buy Trade Signal
When the Balance of Power (BOP) crosses above zero mark a buy signal is generated.
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 is best to wait out for the confirmation by indicator moving above zero mark. As this will be a buy signal in bearish territory and this type of market trading signal is more likely to be a whipsaw fakeout.
Sell Signal
When Balance of Power BOP crosses below zero mark a sell trade signal is given/generated.
Also when the Balance of Power BOP is falling, the market is in a downwards trend, some traders use this as a sell signal but it's best to chill and wait for a confirmation signal by moving below the zero mark because this will be a sell trading signal in bullish territory and this type of market trading 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 and/or trend continuation points in currency movement. There are different types of divergence-setups:
Classic Divergence Setup - Trend reversal signal
Hidden Divergence Trading Setup - Trend continuation
Forex Trading Overbought and Oversold Conditions
This BOP can be used to identify the potentially overbought and oversold conditions in price movement.
- Overbought Oversold levels can be used to provide and give an early warning for potential trend reversals.
- These levels are derived & generated when indicator clusters its tops & bottoms thus setting up the overbought & oversold levels around those values.
However, price may also stay at these overbought & oversold levels and continue heading in that particular direction for-some time & thus its always good for you to wait until the Balance of Power (BOP) crosses over the Zero-line mark.
From the illustration set-out below, though the Balance of Power BOP showed the price was oversold, price continued moving downwards until the indicator crossed over above the Zero level.
Analysis in FX Trading
Study More Lessons and Tutorials & Topics:
- How Can I Use Bulls Power in Trading?
- Reversal Setups Double Top and Double Bottoms XAUUSD Patterns
- What Time Does S&P500 Index Open?
- MACD Hidden Bullish & XAUUSD Hidden Bearish Trade Divergence Setups
- How to Calculate XAU/USD Margin Requirement for 1:50 XAUUSD Leverage
- SPX500 Strategies List and Best SPX Strategies for trading SPX
- 1:100 Leverage
- What is Relative Vigor Index RVI Indicator?
