List of Balance of Power Indicator Tips to Get Started
TC2000 Users have a huge advantage over Traders who do not use this charting program. Unfortunately most TC2000 Users are not taking full advantage of tools embedded in this program. One of the many tools that are unique to TC2000 is the Balance of Power Indicator. This indicator continues to evolve and change as the Market Structure changes, making it one of the most powerful indicators ever written.
Regardless of whether you use MACD, Average Directional Index ADX, Bollinger Bands®, Relative Strength Index RSI, or other popular indicators, adding Balance of Power to what you use will change how you interpret charts, analyze stocks, and select stocks to trade.
For most Traders, Balance of Power makes no sense at all. That is because they have only read the basic information in Worden Help Files, and have not been trained on how to use Balance of Power in the modern automated markets, which is exactly what it was designed for.
Balance of Power is a leading indicator IF you learn to read it properly.
Here is a list of Balance of Power Indicator tips to get started:
1. Just assuming red means distribution and green means accumulation, is an oversimplification of this sensitive and extremely powerful indicator. It is one of the longest formulas ever written with 3.5 pages of algorithms.
The Stock Market has splintered into 72 venues with some lit and some dark, and 9 Market Participant Groups. Therefore red versus green analysis is just the beginning. Traders need to know which Market Participant Group forms that particular red or green Balance of Power Pattern.
2. The length of the Balance of Power bars MATTERS. How long the bars are tells you which Market Participant Group is buying or selling, and that reveals important information in relation to how Price and Volume are behaving. As an example blasting long red Balance of Power in a Bottoming Formation is not giant Buy Side Institutions using Dark Pools, instead it is Smaller Funds using Volume Weighted Average Price trigger orders.
3. Where it is in the Trend that Balance of Power turns green or red MATTERS. Different Market Participant Groups buy and sell at different locations in the Trend, based on their access to pertinent information. Some Market Participant Groups have access BEFORE the rest of the groups hear about it. So those groups are buying or selling ahead of the others.
4. To properly interpret the Balance of Power Indicator you must not only analyze the Balance of Power Bars, but also Volume Bars and Price Patterns together in combination. When you use all three together, the jigsaw puzzle suddenly becomes a viable picture that makes sense.
The chart example below shows Relational Technical Analysis™ which gives the Balance of Power Indicator a logical and sensible interpretation, that Traders can use to enter a stock before huge gaps and runs.
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
Copyright ©2017-2018 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.