Balance of Power indicator: assessment of market forces
Balance of Power indicator - is an oscillator that shows the ability of "bulls" and "bears" in the currency market to reach new maximum price values.
The indicator readings fluctuate between extremum levels -1 and +1. For each individual period they are calculated by the following formula: (Close - Open) / (High - Low). After calculation the readings may be smoothed by means of any moving average.
One of the most important properties of the Balance of Power indicator are the levels in which it forms tops and bottoms. During upward trend these tops quite often approach the upper limit, but they never touch it. In a bear market, we can observe a mirror situation. If the indicator changes the trend, you need to pay attention to the direction of the price.
On the merits Balance of Power indicator can be attributed a reliable determination of the presence of the trend and its strength, since the trend usually does not end until the moment when the indicator does not cross the zero line. From the relative disadvantages it can be noted that in any case it is necessary to confirm the change in the trend on the price chart.
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Other popular oscillators
If you remember the Relative Vigor Index (RVI), the formula for the calculation looks like this:
RVI = (CLOSE-OPEN)/(HIGH-LOW). What's the point here?