Balance of Power: Measuring Buyer and Seller Price Pressure
Summary
The Balance of Power indicator, attributed to Igor Livshin, aims to compare buyers’ and sellers’ ability to move prices toward extremes. Its raw readings range from minus one to plus one, and the values can be smoothed with a moving average. The supplied implementation uses a price range and compares the close with an earlier open; it also includes settings for the range length and whether to include the latest period.
The accompanying interpretation uses the clustering of indicator peaks and troughs to help characterize market direction: bullish periods may show stronger upper readings, while bearish periods may show the reverse. The indicator is also proposed for studying divergence, trends, and overbought or oversold conditions. A shift in its trend is framed as an early warning that should be confirmed by a change in price. The document cites a daily-chart smoothing suggestion but emphasizes that suitable periods depend on the market and timeframe; it supplies no empirical performance test.
Key ideas
- Balance of Power estimates whether buyers or sellers have greater ability to push prices toward extremes.
- Its readings range from minus one to plus one, and users may smooth them with a moving average.
- The clustering of peaks and troughs may help assess bullish or bearish market conditions.
- A change in the indicator's trend is presented as a warning that requires confirmation from price action.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.