Balance of Power Indicator
Description
The Balance of Power Indicator for MetaTrader is an incredible technical trading tool that analyzes the intensity of buy/sell pressure between bulls and bears in the market. It evaluates the buying/selling power of bulls or bears with great potential to push the price of an asset to extreme levels.
The Balance of Power indicator was built to work with the value derived from the close price – (minus) the open/high price – (minus) the low price. It also comes with a default 14 period moving average that fluctuates between positive and negative extreme levels. Therefore, it is very effective for determining overbought/oversold levels and trend continuation/reversal.
In addition, the zero line of the indicator determines the tendency of the market to trend. Thus, light yellow histogram bars above the zero line reflect stronger bullish power, while red histogram bars below the zero line show stronger bearish power.
How to Trade With the Balance of Power Indicator
The image above shows the indicator in action on the GBPUSD currency pair on the H1 timeframe. It shows how to combine price action with an indicator signal to create a high probability entry.
The buy signal shows that the lime histogram bars were above the zero line level and the entry signal was triggered by a bullish engulfing candlestick pattern. Conversely, the sell signal was valid because the trend was moving down and the indicator’s red bar was also below the zero level. Moreover, it also coincides with the bearish engulfing candlestick pattern.
Conclusion
The Balance of Power indicator is a technical trading tool that evaluates the strength of buyers/sellers in the market. It would also be helpful for scalpers, day/intraday and swing traders in making sound technical analysis. Finally, it’s free to download.