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Sentiment Studies

Balance Of Power From ScratchHello, traders! As you know it's very important to identify the balance of bulls and bears. Today, we introduce you one of the most pretty and easy-to-interpret tools - Balance Of Power Oscillator. Balance of Power (BOP) is an oscillator that measures the strength of buying and selling pressure. Introduced by Igor Levshin in the August 2001 issue of Technical Analysis of Stocks & Commodities magazine, this indicator compares the power of buyers to push prices to higher extremes with the power of sellers to move prices to lower extremes. When the indicator is in positive territory, the bulls are in charge; and sellers dominate when the indicator is negative. A reading near the zero line indicates a balance between the two and can mean a trend reversal. The Balance of Power indicator shows the direction and extent of price change during the trading period. Like most oscillators, the Balance of Power indicator can be used to identify trends, divergences from price, and overbought/oversold conditions. Zero-line crossovers provide buying and selling signals. Possible Signals Zero-Line Crossovers The scale of this oscillator ranges from -1 to +1, with 0 as the centerline. Zero-line crossovers indicate a move into positive or negative territory, and are often used as buy or sell signals. A cross above the center line generates a buy signal, and a cross below generates a sell signal. The data is smoothed with a moving average in order to reduce the number of whipsaws. An SMA with more periods reduces the number of false crossover signals, but also reduces the responsiveness of the indicator. While the main signal provided by the Balance of Power indicator comes from zero-line crossovers, it can also be used to determine the trend, look for divergences in price, and identify overbought/oversold securities. Trend identification A rising BOP line indicates an upward trend and a falling BOP line indicates a downward trend. The zero-line crossover confirms the trend change. Divergences with Price When price makes new highs but BOP doesn't, that is a negative divergence; when price makes new lows but BOP doesn't, that is a positive divergence. These divergences can foreshadow a change in trend. Conclusion The Balance of Power (BOP) indicator uses price to measure buying and selling pressure. It determines the strength of the buyers and sellers by looking at how strongly the price has changed, rather than using volume. As with all indicators, traders should use the Balance of Power indicator in conjunction with other indicators and analysis techniques.
Education
by Skyrexio
1
Buying vs Selling Pt2- Who's really in CONTROL?Part 2 here is all about CONTROL . As I said in part 1, people tend to equate green candles with buying and red with selling but the default coloring is wrong and does not reflect the actual actions of smart money. Like color, a common misconception is that if the day is red and way down, people are selling off. The reality is most of the time the market is down because buyers are in control . Think about the stock market the same way you might think about a housing market for a moment. Have you ever heard "it's a seller's market" or "a buyer's market"? What's going on in those markets? Usually in a sellers market, the homeowner lists their house, gets a ton of bids, and chooses the highest bidder. They may even decide they listed too low or change their mind. In a buyers market they may not be so fortunate to get a lot of bids and the bids that come in may be below their asking price. Depending on their motivation, the homeowner in a buyers market might sell for below their asking because they are in a dire situation where they need the money or are spooked that prices are going to continue to fall. In a lot of cases, that's not too far from stock markets. Think about the last month or so with the COVID-19 pandemic and look at this chart- Who's really in control here? You always hear people saying, "Sellers at it again" when we have these -7% trading halts. The reality is closer to this though, who really wants to BUY in a time like this? Sellers have lost control. Through much of the crash you could not sell your shares for yesterday's price because the buyers on the other end of the table said no thanks, I think I can get a better price to buy at later. Here's an example of the December 2018 correction and some insight as to the balance of control- Until you understand it better, thinking of control and phases this way seems counter-intuitive. Why is the price RISING if people are SELLING? Or why would price be FALLING if we're supposedly BUYING? I like to look at it in terms of these phases (on main chart)- Buyers Collect -> Chase -> Sellers Profit -> Panic Most of us are dumb money, retail traders. Oh, and we're HUMAN. We struggle emotionally with harvesting profits because we get greedy and our heart starts pounding when we see heavy volume and giant red candles. Combining color and control on a couple intraday examples-
AMEX:SPYEducation
by chrism665
14
Buying vs Selling Pt1- COLOR, Most have it completely backwardsI'm making a little educational series of tutorials to put some of my trading philosophies into writing for myself but also to help teach anyone interested or provide a fresh perspective to others. Let's start with COLOR . From indicator lines, fill regions, background colors, arrows, to barcolors (be it from an indicator or just the basic candle), most traders are looking at a green candle and a red candle in reverse. Novice traders see a big fat candle and think, "Wow, lots of BUYING" then see a huge red candle and think, "Lots of SELLING". I think we inherently associate green with money and like to see lots of green when we have long positions. And then we associate red with emotions of fear and panic, bad things. Let's have a look at a chart of SPY using the "Ehlers Instantaneous Trend" with ribbon and barcolor to help identify trends and paint them the color we are accustomed to seeing- Very quickly I'm sure a lot of people think the coloring makes sense and might be looking up the Ehler indicator right now (it is a really cool one so go ahead). What we're seeing is this- Most of the time the green candles have been when SPY has been rising Most of the time the red candles have been when SPY has been falling Seems natural to buy when you see these green candles going up and sell/avoid buying when you see red candles going down. The problem is that that's what dumb money does! They buy when smart money is SELLING. Those green candles are actually the result of a smart buyer who timed things correctly and bought at the lows and is now 1) holding onto their shares, 2) waiting for sell signals. And when those red candles start showing up, dumb money gets all panicky and starts selling their shares. They might wait for closing cost to fall beneath a moving average or some other indicator, then they start selling and voila- capitulation. The price those sellers get is probably not great and when it's all said and done was not very much above what their entry price was. But as people are selling, smart money is BUYING. They are fishing for a bottom to start accumulating shares. They look for really 'red' days with lots of volume, a perfect cocktail of emotion that gets weak hands to tremble and chase the price down before capitulating and selling for whatever price they can get. And usually when this is occurring, the bottom forms. Let's reverse the colors of the bars and start seeing things through the lens of smart money- Now if you are still associating green with buying and red with selling, the world should make much more sense. When the candles turn green here you're a buyer and when they turn red you're a seller. That doesn't mean buy the first candle and every candle, all the time, every time. It means that is when you are waiting patiently for the most opportune moment to buy. And when these candles are red you aren't freaking out and selling, you tell yourself "I am looking for moments when I can take some profits off the board when we get really crazy moves up, and maybe replace some of those shares with a few new shares I purchase at lows or on some bad days". The point is that this is a selling phase. I will go into depth as to why selling phases go up*, because I know that's a concept that people struggle with psychologically. (* there's two kinds of selling, as well as buying, which we'll get into). Here are some close-ups on candles and their default colors- Same chart, colors flipped -
AMEX:SPYEducation
by chrism665
11
Indicators: My Issues with BoP: Part #2In Part #1, we established how technical indicators - even the ones with high potential to be leading indicators that may enable revealing possible upcoming price movements, using the example of the Balance of Power (BoP), can come short of taking into consideration all factors associated with the price - we listed 7 specific issues that may cause BoP to show inaccuracies and a trader who depends on BoP for trading signals, need to either be aware of them, or adjust the indicator to address these issues. so what's the idea here? why am I posting this? the concepts i address here impact traders today. i see many fellow traders using MACD or RSI or other methods without the complete understanding of what exactly the signals are telling them - while i'm not a guru by any means, i thought i can share an example here of one of the highly potential concepts and a famous indicator, its shortcomings, and how it may be possible to tweak and adjust it to make it more reliable to the way each of us wants to trade. It becomes "your own system" - it interprets the movement the way *you want to visually interpret it* - and produces signals that you understand exactly what they means and you can rely on, to make a trade (entry / exit) decisions, score more winners, less losers -- it's a step into the "DIY" world of technical indicators if you would. In this part, we pick one of the issues from part #1, and see how we can possibly fix it. and see what this "upgraded" BoP would look like. i'll take the issue of "BoP not taking into consideration where the close of the bar is, compared to the full range of the bar" as we know, if the bar closes near the high, this is a usually very bullish sign, and vice versa. the Shooting Star example (right-most bar in the chart) is an up bar, where close is > open - and as such, the classic BoP gives it a positive score. we all know how bearish a shooting star is - it's a scary pattern to the long trader - if BoP is accurate, it should result in some negative value for such a bar. our update #1 adds a simple calculation - on top of the classic (Body / Range) BoP calculation. It also adds another score for where the bar closes compared to the High. if it closes exactly on the high, it gets a positive +100% and if it closes at the low, it gets a negative -100% -- then the scores are added together and averaged to produce a more accurate representation of the bar - that representation is closer to the way you, as a trader, would have in mind when you "visually" inspect the bar. take a look now as you meet BoP II :) -- some of you would say "Aha!" - now the shooting star gets the negative BoP score it deserves :) i further marked few note-worthy bars on the top chart where the score of the upgraded BoP formula, with this simple technique, is considerably (in my view) different than the classic BoP score - check for yourself if the BoP II score makes more sense to you, and is closer to your "visual" assessment of how bearish / bullish a bar looks to you. on the lower BoP indicator, you can see the difference in action, between the old and the new calculation - also marked areas where old BoP would have shown strength where is should show weakness, or the other way around. in conclusion, i suspect some may be wondering -- 'OK, if we fix all issues with BoP - add volume & spread impacts and factor in the "context" of where the bar is within a trend - do we get the "holy grail" indicator of all times? we'll see -maybe in future parts - please let me know if you find this research interesting of if you have comments.
NASDAQ:MSFTEducation
by RedKTrader
Indicators: My Issues with BoPI guess it's the same story with many traders, few years ago, when i first got introduced to the world of technical analysis and indicators, i was fascinated. trading is such an easy thing, just follow the indicator signals, right? then i started to dig deeper only to learn, each indicator shows something specific - and you need to know what is it that you need to see for your trading style, then choose the right indicator and the right values.. etc. my trading setup started changing from there endlessly. then came the other lesson, indicators alone do not make a successful trader - nothing can predict the future, and an indicator only shows specific "signs" at a specific time - what happens next is subject to so many variables, and some of these variables are even sometimes influenced by big players who may not be all playing in the same direction .. however, indicators still help - but in that case, less is more, and a cleaner chart setup with less indicators would then be the right way to go. so take your pick, MACD, RSI, Stoc, ...etc - and throw in couple of moving averages on the top chart, and you're good to go. that's where BoP comes into play. the Balance of Power is a very interesting indicator that has the potential to show "leading signs" - BoP has been around since the '70's and there are various stories about who is the original "father" of BoP - in all cases, the BoP formula is not a secret anymore - BoP simply divides the "body" by the "range" of a bar - so take (close - open) and divide it by the (high - low). since (high - low) is always a positive value, if it's a down bar (closes lower than the open), you will get a negative result - if it's an up bar, positive. now the Bulls get the positive value (and for that bar, the bears get a zero), and bears get the negative value (and again, the bulls get a zero) - so BoP shows who is in control of price movement (bulls vs bears), and if we know that - then we can expect, for example, a trend up to continue or dissipate, right? i will post further analysis on this if there's interest, and dive into each of the "issues" i highlighted here - but i thought to share initially those "issues with BoP" here in this community - and why i think that the Balance of Power comes short of delivering on the premise - and it's time for an upgrade - leveraging the available computing power and scripting languages we now have available at our fingertips. the attached chart shows 6 issues that the BoP indicator doesn't address in its classic calculation - for my own education, i decided i wanted to "see BoP" for each bar - so the "value cards" we see here are the classic BoP values for each bar - then these values are taken and smoothed using a moving average to produce the green line in the lower panel. i modified the calculation slightly to make it oscillate between +/- 100 , then smoothed with a WMA(3) .. on the value card, we can see that modified "BoPx" value for each bar. my thoughts are "if BoP is right and reliable, why would a well-known bearish chart pattern like a shooting star not have a negative value" - right? those who are like me, curious about technical indicators and like to create their own, may find this analysis as interesting as i did. Let's here from you folks. if you have the chance to re-develop or improve "the BoP", how would you approach that to ensure that it really brings the accurate insights that it should ? Let me know your thoughts. feel free to post here or PM. (the code i use here is open and available, but it's really not an indicator - it's more of a research code) ---------------------------------------------------------------------------- //@version=4 study("BoP Lower #1") // This source code is subject to the terms of the Mozilla Public License 2.0 at mozilla.org // © RedKTrader // this is a research study - it plots the value of the Balance of Power on each bar length = input(title="Length", type=input.integer, defval=7, minval=3, step=1) body = close - open range = high - low score = body / range * 100 bulls = if score > 0 score else 0 bears = if score < 0 -score else 0 //create an index scaled from +100 to -100 dx = wma(bulls, length) / wma(bears,length) dxi = 2 * (100 - 100 / (1+dx)) - 100 // ----------------------------------------------------------------------------------- //print values on top chart //alternate labels once above and once below //c = bar_index % 2 == 0 //T = "Bulls = " + tostring(round(bulls)) + " Bears = " + tostring(round(bears)) + " ----------" + " BoP = " + tostring(round(dxi)) //label.new (bar_index, c ? low : high , text = T, size = size.normal, textalign = text.align_left , style = c ? label.style_labelup : label.style_labeldown, color = color.white, textcolor = color.black ) // ================================================================================================================================== // lower plot -- hline(0, color = color.yellow, linestyle = hline.style_solid) plot (wma(score, length), title = 'Classic BoP', color = color.green) plot(dxi, title='BoPx',style=plot.style_line , color = color.gray , linewidth=1) plot(wma(dxi,3), title='BoP II',style=plot.style_line , color= dxi >=0 ? color.aqua : color.orange , linewidth=2)
NASDAQ:MSFTEducation
by RedKTrader