INDICATORS
Who's The Boss?
Balance Of Power
by Igor Livshin
Who's in charge, bulls or bears? It doesn't take higher-order
math to get a good reading.
The balance of power (BOP) indicator measures
the strength of the bulls vs. the bears by assessing the ability of each
to push price to an extreme level. I deliberately developed BOP not to
be a range-bound indicator, so it is as sensitive at extreme points as
it is at other levels.
Every day, bulls and bears compete with each other in the marketplace.
The idea behind the BOP calculation is to assign a score for both bulls
and bears based on their daily performance related to price movement.
For each market day, the indicator is calculated by using the formulas
shown below. First, three reward values are calculated for bulls and bears:
1. Reward_Based_On_Open
2. Reward_Based_On_Close and
3. Reward_Based_On_Open_Close.
Each reward is calculated relative to the full price movement for that
day (HighPrice-LowPrice).
REWARD BASED ON THE CLOSE PRICE
This value measures the ability of each competing group - bulls and
bears - to push the opening price in opposite directions (bulls up and
bears down). The result of their efforts is registered by the high and
low prices (Figure 1).
Figure 1: Scoring. Bulls and bears are each rewarded by
their success in pushing price around. Here's one of their rewards based
on movement from the open.
BullsRewardBasedOnOpen = (HighPrice - OpenPrice)/(HighPrice - LowPrice)
BearsRewardBasedOnOpen = (OpenPrice - LowPrice)/(HighPrice - LowPrice)
REWARD BASED ON OPEN-CLOSE
This value measures the ability of each competing group (bulls
and bears) to reach the closing price from opposite directions (bulls up
from the low price and bears down from the high price). (See Figure 2.)
Figure 2: Reward based on the price of the close.
BullsRewardBasedOnClose = (ClosePrice - LowPrice)/(HighPrice - LowPrice)
BearsRewardBasedOnClose = (HighPrice - ClosePrice)/(HighPrice - LowPrice)
...Continued in the August 2001 issue of Technical Analysis of
STOCKS & COMMODITIES
Igor Livshin is a private trader. He can be reached by phone at 312
822-6356 or by e-mail at microworksoftware@yahoo.com. His website can be
found at microworkresearch.com/mo/index.html.
Excerpted from an article originally published in the August 2001
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2001, Technical Analysis, Inc.
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