Balance of Power CFD Analysis and Balance of Power Signals

Developed by Igor Livshin

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

Technical Analysis and Generating CFDs Signals

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

The center is marked as a zero line, levels oscillating above or below are used to generate trade 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 Signals

Buy Signal

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

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

Sell Signal

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

Also when the BOP is declining, the cfd market is in a down ward 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 cfd whipsaw.

Sell & Buy Signals

Divergence CFDs

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

Classic Divergence - Trend reversal trade signal

Hidden Divergence - Trend continuation

CFDs Trading Overbought/Oversold Conditions

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

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

However, price might also stay at these overbought & oversold levels & continue moving in that direction for a while & thus it is always good to wait until the BOP crosses over Zero mark.

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

Analysis in CFD Trading