Balance of Power (BOP) Indicator: Calculation, Zero Line and Trading Signals

What is the Balance of Power?

The Balance of Power (BOP) is an indicator that asks for every candle: who controlled it, buyers or sellers? It relates the path from the opening to the closing price to the whole range of the candle. Igor Livshin described it in 2001 in the magazine Technical Analysis of Stocks & Commodities.

The BOP always lies between −1 and +1. A candle that opens at its low and closes at its high has a value of +1; buyers controlled it completely. A candle that opens at its high and closes at its low has −1. If a candle closes exactly at its opening price, the value is 0, as with a doji.

How do you calculate the Balance of Power?

The formula needs only the four prices of a candle:

BOP = (close − open) / (high − low)

An example with round numbers: a candle opens at 100.00, rises to 101.50, falls to 99.50 and closes at 101.00. The body is 1.00, the range 2.00. The BOP is 1.00 / 2.00 = 0.50. Buyers used half of the range for themselves.

In this basic form, each candle has its own value. Most charting programs therefore show the BOP smoothed, usually as a simple average of the last 14 values. Smoothing links many candles into a line that shows whether buyers or sellers have the upper hand over a longer stretch.

What does the Balance of Power show about the market?

The BOP sums up what a look at the candle already shows: the colour and the size of the body relative to the range. A green marubozu without wicks is close to +1, a spinning top with a small body close to 0. The sign is always the colour of the candle.

Its use therefore lies less in the single candle than in the sequence. If the smoothed BOP is above zero, buyers have prevailed over the last candles; if it is below, sellers. How high it stands shows how clearly. If the price keeps rising while the smoothed BOP is already falling, the candles close weaker and weaker: a hint that momentum is fading.

What signals does the Balance of Power give?

Crossing the zero line

If the BOP crosses the zero line upwards, the balance has shifted in favour of buyers; downwards, in favour of sellers. With the unsmoothed BOP, this is simply the change from a red to a green candle or vice versa. That happens constantly in every market and says little on its own. With the smoothed BOP, a cross is rarer and therefore more meaningful.

Above or below the zero line

Many traders use the smoothed BOP as a filter: buys only while it is above zero, sells only below it. In this way they trade with the balance of the last candles and not against it.

Divergences

If the price makes a new high but the smoothed BOP makes a lower one, the candles of the new high close weaker than those of the previous one. Such divergences are a hint of fading momentum, not a signal on their own.

When does a BOP switch confirm, and when does it fail?

A switch of the BOP confirms when the next candles close in the same direction and the smoothed line follows the move. It fails when the very next candle shows the old colour again and the price moves beyond the extreme before the switch. A single change of colour in an intact trend is usually just a counter-candle.

In the false-signal chart, the price has been falling for weeks. At the marked candle, the BOP jumps from −0.63 to 0.67: the candle opens at 99.82 and closes at 100.77. The smoothed line hardly moves and stays below zero at −0.05. The next candle is red again, with a BOP of −0.77. Four candles after the switch, the price closes at 98.35 and thus below the lowest low of the six candles up to the switch (99.07). The switch was a single counter-candle, not a turn.

Example of entry, stop and target

The following example shows a switch that is suitable for an entry: after a clear decline, with a strong candle and a smoothed line that also turns shortly afterwards.

In the chart, the price falls from the swing high at 110.95 over several weeks. During the decline, the unsmoothed BOP already jumps from minus to plus three times without the decline ending. At the marked candle, it switches from −0.54 to 0.79: the candle opens at 103.10 and closes at 104.45, close to its high of 104.50. A trader buys at the close of 104.45. They place the stop just below the lowest low of the last five candles, at 102.65; the risk is 1.80 points. The smoothed line is still at −0.12 at the signal candle and crosses the zero line three candles later. The target is the swing high at 110.95; the price reaches it after 13 candles, which is 6.50 points. This gives a risk-reward ratio of about 1:3.6.

How do you use the Balance of Power on several timeframes?

On short timeframes the unsmoothed BOP switches very often, because every candle counts on its own. A higher timeframe sets the direction: if the smoothed BOP on the 4h chart is above zero, switches upwards on the 1h chart are more of an opportunity than switches downwards.

Conversely, a switch against the higher timeframe is usually just a counter-candle in the larger trend. FinScans shows the trend across the eight timeframes on the signal page and in the cockpit, as the methodology on the trend describes.

How do news and scheduled releases affect the Balance of Power?

A candle in which an important figure is released often has a large range and long wicks. Its BOP can be small even though the price swung sharply, or large even though the swing reverses in the next candle. The BOP of the release candle therefore says little about the direction afterwards.

Before releases with high impact, it is worth checking the economic calendar. How reports feed into the assessment of an asset is described in the methodology on the news situation. After an important figure, many traders wait for one or two closed candles before paying attention to a switch of the BOP.

How do you use the Balance of Power in the four trading styles?

Balance of Power in scalping

In scalping on the 15m and 30m chart, the unsmoothed BOP changes sign very often, almost constantly in quiet phases. On its own it is hardly useful as a trigger here. Scalpers use it rather as confirmation: a breakout from a range is more convincing if the breakout candle has a BOP close to +1 or −1, that is, closes with almost no wick in the direction of the breakout.

The direction comes from the 1h or 2h chart. The stop sits tight behind the breakout candle, and spread and fees make up a noticeable part of the risk. Positions are held for minutes to a few hours, and scalpers avoid trading around releases with high impact. The style demands quick decisions and the willingness to accept many small losses.

In quiet phases the candles have small ranges; then a few ticks are enough for a high BOP value that means nothing. Scalpers therefore also look at the range of the breakout candle compared with the previous ten candles. A candle with a large range and a high BOP is a different sign from a tiny candle that happens to close at its high.

Balance of Power in day trading

In day trading on the 1h and 2h chart, the smoothed BOP is a useful filter. If it is above zero, the day trader looks for pullbacks to buy; if it crosses the zero line, they wait until the next candles confirm the new direction.

The higher direction comes from the 4h or 8h chart. The stop sits behind the last swing low or high, the target at a daily high or low. Positions are closed before the end of the trading day, so there is no overnight risk. The London and New York opens bring the candles with the most meaning; in the Asian session, ranges and BOP values are often small.

A common approach combines the BOP with the previous day's high or low. If the price runs to this level and the next 1h candle closes strongly back, that is, with a BOP close to −1 at resistance or close to +1 at support, that points to a rejection. The day trader enters only when the following candle also holds the direction.

Balance of Power in swing trading

In swing trading on the 4h and 8h chart, the smoothed BOP shows whether a trend lasting several days is carried by strong closes. An entry follows a correction, when the BOP rises above the zero line again in the direction of the trend and the candles close near their highs.

The 12h or daily chart serves for the higher direction. The stop sits at a distance behind prominent turning points, because positions run for days. Overnight risk and, for forex, the weekend gap are part of it; cryptocurrencies also trade at the weekend. A divergence between price and smoothed BOP is often the first hint here to take partial profits.

Because each candle on 4h and 8h bundles several hours of trading, its BOP carries more weight than on short timeframes. A sequence of candles with a falling BOP while the price keeps rising shows that buyers no longer hold the candles until the close. Anyone holding a position then trails the stop instead of buying more.

Balance of Power in position trading

In position trading on the 12h and 1d chart, the smoothed BOP counts over weeks. If it stays above zero for a long time, buyers have controlled the daily candles over a whole phase. A cross of the zero line on the daily chart is a reason to review the position, not necessarily to close it.

There is no timeframe higher than 1d at FinScans; the course over several months serves for orientation. Stops are wide, and positions must withstand pullbacks. Fundamental influences and major releases weigh more heavily on this horizon than individual candles.

Raw or smoothed BOP?

Both forms show the same balance, but on different levels. Which one fits depends on the question.

Common mistakes when trading with the Balance of Power

• Trading every change of colour: the unsmoothed BOP changes sign constantly. Without smoothing or context, this leads to many false signals.
• Overlooking the range: a tiny candle with a BOP of 0.9 is no proof of strong buyers. What matters is how large the candle is compared with the previous ones.
• Trading against the trend: a switch upwards in a clear downtrend is usually a counter-candle.
• Overrating release candles: candles with important figures have distorted wicks and bodies.
• Entering without a stop: even a confirmed switch can fail. The stop comes before the entry, and the position size follows risk management.

What the BOP triggers are called in FinScans signals

On the signal page, the triggers appear in the table of triggers, each with an arrow: ▲ means FinScans counts the trigger on the bullish side, ▼ on the bearish side. Two names belong to this page:

• “BOP Zero Cross Up” (▲): the BOP crosses the zero line upwards.
• “BOP Zero Cross Down” (▼): the BOP crosses the zero line downwards.

The two names are among the most frequent triggers: one of them appears in about two out of three signals, never both at once, and almost never alone. They appear overwhelmingly in signals of their own direction. Because they occur so often, such a trigger rarely decides the direction of a signal on its own; it confirms that the signal candle closed in that direction.

The signal page shows no class for indicators. FinScans combines a BOP trigger with the other triggers of the same signal into an overall direction. Whether the signal runs with or against the larger move is shown by the overall assessment in the cockpit.

The following block shows current data on these triggers. The hit rate should always be seen relative to the average: if it is above, the trigger has a statistical edge; if it is below, it is more of a hint than a reason to enter on its own. Rates can vary strongly by trading style, because there is more noise on short timeframes. The distances to target and stop also play a part: a tight stop is hit more often than a wide one, a distant target less often than a near one.

What the machine reports, what you check yourself

The machine monitors the forex and crypto pairs and reports when the BOP crosses the zero line. Whether the switch is a turn or just a counter-candle is your judgement. This interplay is called hybrid trading.

• The machine reports the switch; you check whether the signal candle is large compared with the previous ones and closes near its extreme.
• The machine shows the trend across eight timeframes; you check whether the switch runs with or against the higher timeframe.
• The machine combines the trigger with others; you check whether support and resistance in the chart sensibly limit target and stop.
• The data block provides the hit rate so far; you size the position according to your risk management.
• The machine updates the signal candle by candle; you stick to your plan for target and stop.

Frequently asked questions

How do you calculate the Balance of Power?

For each candle, the closing price minus the opening price is divided by the range of high minus low. The result lies between −1 and +1. This value is usually smoothed over 14 candles, so that a line emerges that shows the balance over several candles.

What does a BOP above zero mean?

A BOP above zero means the candle closed higher than it opened. For the smoothed BOP, it means buyers have prevailed over the last candles. The closer the value is to +1, the more clearly.

Why does the BOP change sign so often?

Because in its basic form it is calculated for each candle separately and its sign follows the colour of the candle. Every change from a red to a green candle is a cross of the zero line. Only smoothing turns this into a rarer and more meaningful event.

What is the difference between BOP and MACD?

The MACD measures the distance between two moving averages of the closing prices and thus direction and momentum over many candles. The BOP measures how strongly each single candle moved from its open to its close. It reacts faster but is considerably more restless when unsmoothed.

Sources

• Livshin, Igor: Balance of Market Power, Technical Analysis of Stocks & Commodities, 2001.
• Nison, Steve: Japanese Candlestick Charting Techniques, 2nd edition, New York Institute of Finance, 2001.
• Murphy, John J.: Technical Analysis of the Financial Markets, New York Institute of Finance, 1999.