Balance of Power Indicator: Smoothing Buyer and Seller Pressure
Summary
The Balance of Power indicator, attributed to Igor Livshin, estimates the relative strength of buyers and sellers by comparing their ability to push prices toward extremes. Its raw values range between −1 and +1. The described implementation follows the formula from Livshin’s 2001 article, and allows the result to be smoothed with a moving average of the user’s choice.
The document argues that unsmoothed readings can be too erratic to guide trades, so smoothing is part of the indicator’s practical use. It gives 14 periods as the default associated with Livshin while emphasizing that the setting requires experimentation. It also proposes pairing the smoothed indicator with a Discontinued Signal Line for trend or scalping applications. No entry rules, examples, backtests, or evidence of performance are provided, so the trading applications are suggestions rather than validated strategies.
Key ideas
- Balance of Power estimates the relative ability of buyers and sellers to move price toward extremes.
- Its raw readings range from −1 to +1.
- A moving average can smooth the raw indicator, with 14 periods given as a default.
- The document suggests combining the smoothed indicator with a Discontinued Signal Line.
- It provides no trade rules or performance evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.