Balance of Market Power Study

By Samantha Baltodano

TL;DR:

The Balance of Market Power is a price-based indicator used by technical analysts to evaluate the overall strength of buyers and sellers in the market. 

It is an oscillator that measures the ability of bulls and bears to push prices to extreme levels, with positive values indicating an uptrend and negative values indicating a downtrend. It is best paired with a moving average to smooth out its choppiness. 

It can be used to generate specific trading signals on crossovers with its center line, indicating market dominance of buyers or sellers.

What Is The Balance of Market Power Study?

The Balance Of Market Power study is a price-based indicator used by technical analysts to evaluate the overall strength of buyers and sellers in the market. 

It is an oscillator showing strength of the bulls versus bears measured by the ability of each to push prices to extreme levels. Positive values of the oscillator signify an uptrend, while negative ones signify a downtrend.

On its own, the Balance Of Market Power is not a particularly smooth indicator, and is therefore best paired with an indicator that can counter this by providing essential smoothness. By pairing the Balance of Market Power with a moving average like the Simple Moving Average (SMA), for example, the result is a smooth, proper analysis for viewing.

Calculations

To calculate the Balance of Power, use the following formula:

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

The Balance Of Market Power study is calculated as the ratio of the differences between the Close and the Open and between the High and the Low. It can also be smoothed with a moving average of a selected type.

Takeaways

Like all oscillators, the Balance of Market Power (BOP) is known to oscillate around the zero center line, ranging from -1 to +1. 

A positive BOP indicates buyer market dominance, whereas negative BOP indicates seller market dominance. When BOP is equal to zero, it shows that buyers and sellers are equal in the current market.

Trade Signals

Keep in mind that BOP can be used to generate specific trading signals on the crossovers with its center (zero) line, suggesting the following:

• Buy when the BOP becomes positive (crossing above the zero line) as it may imply that bulls are taking control.
• Sell when BOP becomes negative (crosses below the zero line) as it may imply that bears are taking control.

Limitations

On its own, the Balance of Power indicator is quite choppy and is best paired with another indicator that can counter this with unparalleled smoothness. Oftentimes, this is paired well with the Simple Moving Average (SMA).

Test The Balance of Market Power Study

Great news! 

You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 

This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.

If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the Balance of Market Power Study.

Summary

• The Balance of Market Power is a price-based indicator used for technical analysis to determine the strength of buyers and sellers. 
• On its own, BOP is not a particularly smooth indicator, and is therefore best paired with an indicator that can perform this, such as the Simple Moving Average (SMA).
• Positive values of the oscillator signify an uptrend, while negative ones signify a downtrend.
• Buy when the BOP becomes positive (crossing above the zero line) as it may imply that bulls are taking control.
• Sell when BOP becomes negative (crosses below the zero line) as it may imply that bears are taking control.

Balance of Market Power is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.

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