Constructing a non-range-bound balance of market power score

What the score measures

Balance of market power measures which side can push price to an extreme. The constructed score is deliberately not range-bound, so readings stay as sensitive at extremes as they are elsewhere.

Each session assigns bulls and bears three range-normalized rewards: movement from the open toward the high or the low, movement from the opposite extreme to the close, and an extra open-to-close score only for the side that finished the day.

Three range-normalized rewards

The reward based on the open is the share of the day's high-low range that each side captured by moving price from the open toward the high or the low. The open-based bull reward is the open-to-high distance divided by the high-low range. The open-based bear reward is the open-to-low distance divided by the same range.

The reward based on the close is the share of the day's high-low range that each side captured by moving price from the opposite extreme to the close. The close-based bull reward is the low-to-close distance divided by the high-low range. The close-based bear reward is the high-to-close distance divided by the same range.

The reward based on the open-close is an extra range-normalized score given only to the side that finished the session in its favor, from open to close. If the close is above the open, only bulls receive the open-close reward of close minus open over the high-low range. Otherwise only bears receive the symmetric open minus close reward.

How the daily score is combined

Each side's daily reward is the simple average of its three rewards for that session. The indicator is the bull daily reward minus the bear daily reward.

Smoothing and v-shaped extremes

On daily charts the constructed score is typically smoothed with a 14-day average. The lookback is changed to match the market and the chosen time frame.

The score tends to form sharp v-shaped extremes: pointed highs or lows at prior support or resistance, rather than a lingering overbought or oversold band. Approach to a previously respected high or low raises the chance of a price reversal, even though price and the score can still extend.

Confirmation, divergence, and participation

The same construction supports divergence, trend, and overbought-oversold readings. Divergence is a repeatable mismatch between price structure and the constructed score that can be stated as a falsifiable trade hypothesis.

A dual-horizon average uses a shorter and a longer moving average of the same score together. A short-horizon trend break is treated as confirmed only when the longer path agrees.

A longer-horizon version of the same score can be used as market breadth: a chart-scale participation reading that judges whether bulls or bears still control the tape. A major low is hypothesized only if the score reaches a downside extreme comparable to a prior upside extreme.

A momentum strategy turns the constructed score, its moving average, and explicit hold-or-stand-aside rules into one entry, exit, and abstention system.