In a simple word, the Balance Of Power Indicator helps you to understand buyer and seller activities in the market.
Balance of power indicator setting
Go to indicator search section (studies) and search for “balance of power”
- Period: this is by default 14 period. This means the last 14 candle trading activities will need to calculate this indicator movement.
- Moving average type: by default is a simple moving average, you can change it to exponential Moving or many types of moving averages.
- Result: this is the line color of the BOP .
- Panel: this is the panel for showing this indicator line. This is not important. My recommendation is to set as a by default or set it to auto.
- Y-axis: this is to move the right side numbers location. By default it on the right side. You can change it to the left or hide it.
- Invert Y-axis: to change the right sidebar upside to downside. My recommendation not to change this.
Calculation Of BOP
- Its measure by subtracting the period opening price from the closing price.
- and also substrating the period low price from the high price.
- then debiting the substation value of closing and opening price results by the subtraction result of the high and low.
Formula is below
Balance of power = ( Closing price - Opening price)/ (High Price - Low Price).
Balance of power indicator Trading strategy
This indicator helps you to find the trend is a reversal or not. To find the stock trend is a reversal or not, you have to see a divergence between stock price and BOP indicator. And this will help you to understand the stock trend is a reversal or not.
- when the stock price is hit lower low but BOP hit higher low this means the trend is reversible.
- when the stock price is higher highs but This indicator lower highs then this is the bearish signal
- when the share price is higher lows and BOP hitting lower lows. This is the bullish signal
- When the share price is lower highs and this indicator line hit higher high. This is the bearish signal.
Also BOP help you to understand trend direction.
Conclusion
The Balance of power indicator helps you to find trend Direction with the strength of the trend, which tells you the trend is reservable or long term trend.
*Read related post to know more about helpful indicator.