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Balance of Power Stock Indices Technical Analysis and Balance of Power Stock Indices Signals

Developed by Igor Livshin


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


Balance of Power Technical Stock Indices Indicator



Stock Indices Technical Analysis and Generating Stock Indices Signals


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

The center is marked as the zero line, levels oscillating above or below are used to generate stock indices 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 Stock Indices Signals


Buy

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

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



Sell

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

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


Balance of Power crosses below zero sell stock indices signal

Sell and Buy Stock Indices Signals


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Divergence Stock Indices

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


Classic Divergence - Stock Indices Trading Trend reversal stock indices signal



Hidden Divergence - Stock Indices Trading Trend continuation

Trading Overbought/Oversold Conditions

This Balance of Power can be used to identify potentially overbought and oversold conditions in stock index price movement.



  • Overbought/Oversold levels can be used to provide an early warning for potential stock indices 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, stock index price may also stay at these overbought and oversold levels and continue moving in that direction for a while and thus it's always good to wait until the BOP crosses over the Zero mark.


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

Overbought/Oversold conditions

Technical Analysis

 

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