Using Balance of Power to Gauge Buyer and Seller Control
Summary
The Balance of Power indicator estimates whether buyers or sellers controlled a candle by comparing the close with the open and scaling that difference by the candle’s high-low range. Positive readings suggest buyer dominance, negative readings suggest seller dominance, and values near zero indicate balance or indecision. This version applies a simple moving average to smooth the readings and reduce short-term noise.
The document also suggests that unusually strong positive or negative readings, with ±0.2 offered as an example threshold, may precede a correction. This is an interpretation of the indicator rather than a demonstrated trading edge: no market, timeframe, backtest, or risk controls are supplied. The calculation can help summarize candle pressure, but it does not by itself establish whether a move will continue or reverse.
Key ideas
- The indicator compares the candle's close-open change with its full high-low range.
- Positive values signal buyer dominance, while negative values signal seller dominance.
- Readings around zero represent balance or uncertainty between buyers and sellers.
- A simple moving average is used to smooth the indicator.
- Extreme readings may suggest correction risk, but the document provides no validation of that interpretation.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.