What is Balance Of Power

Don Worden created the balance of power (BOP) indicator in the 1950s to understand market activity between buyers and sellers. BOP is an oscillating indicator that measures the market strength of buyers against sellers by assessing the ability of each side to drive prices to an extreme level. The value produced by the indicator oscillates between -1 and 1.

Note: This indicator is sometimes referred to as Balance of Market Power (BMP).

Balance Of Power Indicator

BOP is an oscillator indicator that measures the strength of the buyers’ market against sellers. It does this by assessing the ability of either side to drive prices to an extremity. 

The BOP Indicator is plotted about a zero line. When it is above the zero line, it showcases systematic buying and indicates systematic selling with it is below the zero line.

How To Calculate Balance Of Power

Formula:- BOP = (Close price – Open price) / (High price – Low price)

Why Use Balance Of Power

Traders can use the BOP indicator to identify the direction of a trend and enter/exit the market accordingly. Moreover, they can also take advantage of oversold and overbought conditions. 

How to Use Balance Of Power

Bullish Scenario:- Since BOP is an oscillator means that if it goes above 0 and stays there, that generally indicates an upward trend, i.e. a bullish scenario. 

Bearish Scenario:- Similarly, if it goes below 0 and stays there, that generally indicates a downward trend, i.e. a bearish scenario.

Balance Of Power Trading Strategy

Building Balance Of Power Trading Strategy in Mudrex

Strategy:- 

BUY:- BOP crosses up 0.1

SELL:- BOP crosses down -0.1

TIME FRAME:- 4Hrs

STOP LOSS:- 15%(Trailing)

Creating on Mudrex:- 

We will use 2 BOP indicator blocks—one for selling and One for buying.

For buying, we will use the following settings:-

Balance Of Power Trading Strategy

For selling, we will use the following settings:-

Final Strategy:-

Balance Of Power Trading Strategy

Testing:- 

Running on Binance Futures: BTC/USDT with tick interval of 4H yielded an overall profit of 50.18%

Check out the crypto blog by Mudrex for recent updates on crypto, trading strategies, tips & tricks, and a lot more.

Links