Understanding Balance of Power with IQ Option

Understanding Balance of Power with IQ Option

IQ Option are back with their guides to trading techniques with their latest which gives you an insight into how to make use of Balance of Power when trading on their platform.

Following a series of other guides to trading technique the latest they have released is BOP, as it is known, which can be used a means by which when utilised properly will help you judge the market power of buyers and sellers. From this, you should be able to infer what the market sentiment is at any given moment – hence the name Balance of Power. The nature of the tool is a beneficial one regardless of what you want to trade and so can be used on Forex, stocks, indices, ETFs and cryptocurrencies.

The tool is designed in order to help you make better informed and more successful trading decisions on any assets, digital or traditional, that you are hoping to trade. Of course, from the get-go, this sounds promising and IQ Option’s latest trading guide will give you an insight into exactly how that can work and the platform has noted three main ways it can help you. These are:

  • Better identify the prevailing trend,
  • Determine entry and exit points,
  • Determine overbought and oversold positions.

Although it offers these insights when you look at it you may not be able to decipher a difference from it and any other oscillator you may have seen before. However, as opposed to these other oscillators it works different and doesn’t concern upward or downward swings and instead follows its own formula which is as follows:

Balance of Power = (Close price – Open price) / (High price – Low price)

According to IQ Option the most important principle behind Balance of Power is that “when the indicator is above the zero line, it points to the prevalence of positive market sentiment. When the indicator is below the said line, sellers have an upper hand”. At least, that is according to the indicator.  

As you can see it isn’t the complex method by which to attempt to implement and should be a pretty easy one to implement to your own trading. With the key element to remember is that the elements that overbought/oversold can help identify when trend reversal is more likely when can help you get an upper hand when trading.

Nothing is as simple as this though and IQ Option has pointed out a few flaws with using this technique, specifically, “that the information provided by this indicator is not enough to use on its own” because buying pressure is not connected directly the price. As regardless if whether or not buyers or sellers have the upper hand, the opposite to what this means for the market can still happen.

Due to this, understanding movement patterns can be an issue for some users who attempt to use this trading technique. The main issue is that those who don’t acknowledge enough about the market will think a buying opportunity comes when BOP crosses the zero line from below, while when it crosses that line from above, it is best to sell. However, trading is not as black and white as that and BOP Can be above or below depending on the prevailing trend.

As such, you need to consider the full picture before you go blindly into trading in this way. With the importance of BOP coming in a means to understand the market participants intentions and determine whether it will go up on to when used in conjunction with other technical analysis and is not one to trust purely on its readings alone.

If you want to give it a try though then you can do now by going over to IQ Option and selecting it from the screen of the indicator then just tinker with the number of periods and the moving average type until you are happy with its functions.

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