Balance of market power Indicator For MT5



Table Of Contents:

  1. Balance of market power Indicator For MT5
  2. How to Interpret Balance of market power Indicator For MT5
  3. Basic Signals Generated By Balance of market power Indicator For MT5
  4. Simple Actionable Strategy Using Balance of market power Indicator For MT5

The idea behind Balance of market power Indicator For MT5 was first introduced in the August 2001 issue of Stocks and Commodities Magazine by Igor Livshin. The indicator seeks to measure the strength of buyers versus sellers by estimating the ability of each group to push an underlying asset’s price to an extreme level.

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How to Interpret Balance of market power Indicator For MT5

The Balance of market power Indicator For MT5 calculates the raw values for each time frame under consideration using the below given formula:

(CLOSE- OPEN) / (HIGH - LOW)

The resulting raw indicator values are then smoothed using a moving average, which oscillates between extremes of -1 and +1. Positive Balance of market power is indicative of buyers' dominance, while negative indicator readings signal the presence of stronger selling pressure. When the Balance of market power Indicator For MT5 is equal to zero, it points to a situation whereby buyers and sellers remain equally strong.

According to Igor Livshin, one of the most important characteristics of Balance of market power Indicator For MT5 is its tendency to cluster its tops and bottoms. During bullish market conditions, the indicator peaks tend to reach the upper limit and seldom reach the bottom half. Conversely, during bear trends, the indicator troughs typically hit the lower limit and seldom reach the top half.

Basic Signals Generated By Balance of market power Indicator For MT5

1. Zero Line Crossover

The center line on the Balance of market power Indicator For MT5 chart represents the level “0 (zero).” The indicator convincingly crossing above or below the center line can be treated as viable trading signals. A bullish center line crossover is said to have been printed  when the indicator rises from below zero to turn positive. Contrarily, a bearish center line crossover occurs when the Balance of market power Indicator line drops from above zero in to negative territory.


2. Divergence between Indicator and Price

Divergences in direction of Balance of market power Indicator For MT5 with underlying price are powerful technical trading signals. A bullish divergence is said to have been plotted when price plots a lower pivot low, while the indicator curve moves higher. Conversely, a bearish divergence forms when price charts a higher pivot high, while Balance of market power refuses to follow suit. 


3. Trendline Break


Just like price charts, trendlines can also be drawn on the Balance of market power Indicator For MT5, a break above/below which tends to reveal the short term market direction. Two or more reaction highs on the indicator can be joined to form a downward sloping trendline, while connecting two or more reaction lows result in an upward sloping trendline. Trendline breaks often act as leading indicators of short term price reversals.

Simple Actionable Strategy Using Balance of market power Indicator For MT5

Combining the Balance of market power Indicator For MT5 with a momentum oscillator to trade in the direction of the broader market trend is a simple yet profitable strategy across any time frame. For long entries, we first wait for the Balance of market power Indicator to cross above the zero-line. This indicates the trend has changed to up. We verify the shift to bullish bias by waiting for the 14-period RSI to come out of the oversold zone (<30) and close above the 50-mark. Once both of the above conditions have been met, we initiate a long position as soon as price breaches the last major pivot high on substantial volumes. A protective stop loss can be placed just below the low of the prior 3 bars. For short entries, the entire trade process is reversed.

 

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