Balance of Power Stocks Technical Analysis and Balance of Power Stocks 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 stocks price to extreme levels.

Stocks Technical Analysis and Generating Stock Signals

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

The center is marked as the zero line, levels oscillating above or below are used to generate stocks 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 Stocks Signals

Buy Signal

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

Also when the BOP is rising, the stocks market is in an upwards 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 bearish territory and this type of signal is more likely to be a stocks whipsaw.

Sell Signal

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

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

Sell and Buy Stocks Signals

Divergence Stocks

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

Classic Divergence - Stocks Trend reversal stocks signal

Hidden Divergence - Stocks Trend continuation

Stock Trading Overbought Oversold Conditions

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

• Overbought/Oversold levels can be used to provide an early warning for potential stocks 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, stocks 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 stocks example illustrated and explained below, even though the Balance of Power showed the stocks price was oversold, price continued moving downwards until the indicator crossed over to above Zero.

Technical Analysis in Stock Trading