What Is the Balance of Power?
An oscillator called the Balance of Power (BOP) gauges how much pressure there is to purchase and sell. In the August 2001 issue of Technical Analysis of Stocks & Commodities magazine, Igor Levshin introduced this indicator, which contrasts the ability of sellers to drive prices to lower extremes with the ability of purchasers to drive prices to higher extremes. Bulls are in control when the indicator is in positive area, while sellers are in control when it is in negative territory. A value close to the zero line suggests equilibrium between the two and may signal a reversal of the trend.
Note: This indicator is sometimes referred to as the Balance of Market Power (BMP).
Calculation
Livshin’s original calculation method for the Balance of Power indicator is fairly complex, but can be reduced to a much simpler formula:Copy
BOP = (Close - Open) / (High - Low)Since using these raw daily values naturally results in a choppy oscillator, a moving average is usually used to smooth the values. Although a 14-period SMA is suggested by Livshin for smoothing, the number of periods can be changed to accommodate the timescale being plotted. The indicator that is produced fluctuates between -1 and +1. A security that is closing above its open is indicated by a positive value; the greater the figure, the more pronounced the positive price change. For each time period included in the moving average, a maximum value of +1 would mean that the security opened at the low value and closed at the high value.
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