One of the challenges that you might face when using BOP is its movement patterns. Indeed, it is not always easy to determine when the indicator follows the trend or not.
How to use it in trading?
Conversely, when the indicator crosses the zero line from above, a SELL position can be established. But it is not always true. Due to its peculiar nature, Balance of Power can be above or below the zero line regardless of the prevailing trend. Balance of Power can provide a confirmation to other indicators in accordance with the rules, mentioned above. When another technical analysis indicator points to an emerging trading opportunity, you may use Balance of Power to determine what other market participants think about the asset price, and whether it should go up or down.
Setting up the Balance of Power indicator is easy.
Balance of Power — Identifying Market Sentiment
Alternatively, adjust the number of periods and the moving average type. The higher this number of periods, the less sensitive the indicator will become. The lower the number of periods, the more sensitive it will be the number of false alarms will increase, as well. The moving average type can also affect the readings of the indicator. NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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When the indicator tends to be decreasing, this is evident that the market is in a bear trend. In addition, crossovers of the zero line provide trading signals. When the BoP crosses above zero, this is considered as a signal to buy.
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When the BoP crosses below zero, this is considered as a signal to sell. Second, searching for divergences between the price and the BoP in order to identify a potential trend reversal or trend continuation setup. There are two types of divergences — regular and hidden.
Balance Of Power Indicator MT4 & MT5 (Free Download) - FOREX IN WORLD
Regular divergences signal trend reversals, while hidden divergences signal trend continuation. A regular bullish divergence is a situation, when the market forms lower lows, while the BoP forms higher lows. A regular bearish divergence is a situation, when the market forms higher highs, while the BoP forms lower highs. A hidden bullish divergence is a situation, when the market forms higher lows, while the BoP forms lower lows.
A hidden bearish divergence is a situation, when the market forms lower highs, while the BoP forms higher highs. Third, taking advantage of overbought and oversold conditions.