Balance of Power Technical Analysis & Balance of Power Trading Signals

Developed by Igor Livshin

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

Energy Analysis & How to Generate Trade 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 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 Trading Signals

Buy Signal

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

Also when the BOP is rising, the market is in an up-wards trend, some traders use this as a buy signal but it's best to wait for the confirmation by the technical indicator 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 energies whipsaw.

Sell Signal

When BOP crosses below zero a sell signal is given.

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

Sell & Buy Trading Signals

Divergence Energy

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

Classic Divergence - Trend reversal trade signal

Hidden Divergence - Trend continuation

Energy Overbought/Oversold Conditions

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

• Overbought/Oversold levels can be used to provide an early signal for potential 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, price may also stay at these over bought 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 example highlighted & described below, even though the Balance of Power showed the price was oversold, price continued heading downwards until the indicator crossed over to above Zero.

Technical Analysis in Energies Trading