Balance of Power Oil Trading Technical Analysis & Balance of Power Trading Signals

Created by Igor Livshin

Balance of Power indicator measures the strength of the bulls versus the bears by assessing ability of each to push crude oil price to extreme levels.

Oil Trading Technical Analysis & How to Generate Trading Signals

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

Center is marked as the zero line, areas oscillating above or below are used to generate oil 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 Trading Signals

Buy Signal

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

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

Sell Signal

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

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

Sell & Buy Trading Signals

Divergence Oil Trading

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

Classic Divergence - Oil Trading Trend reversal oil trading signal

Hidden Divergence - Oil Trading Trend continuation

Crude Oil Trading Overbought-Oversold Conditions

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

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

However, crude oil price may also stay at these over bought and oversold levels & continue heading in that direction for a while and thus it's always good to wait until the BOP crosses over Zero mark.

From the crude oil trading example explained below, even though the Balance of Power showed the crude oil price was oversold, crude oil price continued moving downwards until the indicator crossed over to above Zero.

Technical Analysis in Crude Oil Trading