An Introduction to Balance of Power (BOP) Indicator

There are so many indicators that are used to analyze the market, like knowing the strength of buyers and sellers which balance of power is one of the best indicators that is used by traders to measure whose strength is stronger in the market. In this post, the Balance of Power (BOP) indicator is our topic of discussion.

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Balance of Power (BOP) Indicator

Igor Livshin is the person who developed BOP in the year 2001 which first came out in commodities and stock market trading. Balance of Power is called Power and is used to measure the strength of sellers and buyers in the market by using BOP you will be able to know if it is sellers yeah who have the strength or if it is buyers yeah more strength in the market than sellers.

BOP indicator, is best described as a price-based indicator that is used by traders to evaluate the overall strength of sellers and buyers in the financial markets. In the BOP indicator, there Are two positive values (+1) and negative (-1) values, which a bullish market is an indication of a positive value, whereas a bearish market is an indication of a negative value.

However, if you are a trader who is looking for a smooth indicator, you should combine BOP with another smooth indicator like simply moving the average indicator, to have accurate results when analyzing the market of the asset you want to trade on. Let's see how BOP is calculated before moving further with our discussion

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BOP Calculations

As a developer by Igor Livshin it is very easy to calculate the BOP indicator as it requires no special skills other than using the formula stated below.

Balance of Power = (Close price – Open price) / (High price – Low price)

According to the developer of BOP, it is much advisable to use a 14-period SMA, for smoothing the indicator, which if you don't want you can modify the indicator to fit your timeframe.

What You Should Look Out For in BOP

One thing you should know when using BOP is that it is an oscillator Indicator that begins it range from -1 to +1, which when it is positive it means buyers have dominated the market, whereas when it is negative it means sellers have dominated the market. Also when you see that BOP is equal to zero (0), it means that sellers and buyers are equal in the market.

Things you should do when you see some crosses.

• You should consider buying when you have seen that BOP has become positive (crossing above the zero line) as it means the market is about to be bullish.

• You should consider selling when you have seen a bag that BOP has become negative (crossing below the zero line) as it means the market is about to be bearish.

However, for a much better signal, you should combine BOP with other indicators like simple moving average (SMA), most especially when you want smoothness in what you are analyzing.

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Conclusion

_{As we have learned, Balance of Power is an indicator that is not just used for price-based but also used to determine the strength of sellers and buyers in the market. Also, we have learned that it is not a smooth indicator, which you can combine with SMA as discussed and shared in our screenshot images. Note that this post is treated as educational content and not investment advice.}