Balance of Power Stock Indices Technical Analysis & Balance of Power Stock Indices 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 stock index price to extreme levels.

Indices Technical Analysis & How to Generate Trading Signals

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

Center is marked as the zero line, areas 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 Stock Indices Signals

Buy Signal

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

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

Sell Signal

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

Also when the BOP is declining, the stock indices market is in a downward 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 stock indices whipsaw.

Sell & Buy Stock Indices Signals

Divergence Indices

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

Classic Divergence - Stock Indices Trend reversal stock indices signal

Hidden Divergence - Stock Indices Trend continuation

Stock Indices Overbought Oversold Conditions

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

• Overbought-Oversold levels can be used to provide an early signal for potential stock indices trend reversals.
• These levels are generated when indicator clusters its tops and bottoms thus setting up the overbought & oversold levels around those values.

However, stock index price might also stay at these over bought & oversold levels and continue heading in that direction for a while & thus it is 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, price continued heading downwards until the technical indicator crossed over to above Zero.

Technical Analysis in Indices Trading