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2001issue C081-6

Smoothing balance of market power with a moving average

Balance of market power is a signed bar-range series built from open, high, low, and close. The plotted forecast is a moving average of that series over a chosen lookback, not the raw per-bar fraction.

  • The raw per-bar series is close minus open, divided by high minus low, from ordered open, high, low, and close observations.
  • An expanded form averages three bullish range fractions and three bearish range fractions, then subtracts the bearish average from the bullish average.
  • The plotted forecast is a moving average of the constructed series, with a default lookback of 14 sampling intervals that can be replaced.
  • The same series can carry a dual-average overlay, including a 14-interval and a 95-interval moving average, as an explicit quantitative baseline.
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Current trackMoving average449 readings

From bar fractions to a forecast

Editorial: A bar-range oscillator is a construction problem first. Competing open, high, low, and close reward terms are collapsed into one signed series. An explicit lookback average then makes the forecast the smoothed series rather than a raw bar fraction.

The raw per-bar series is constructed from ordered open, high, low, and close observations as close minus open, divided by high minus low. That signed series is balance of market power: it compares bullish and bearish fractions of the high-low range and is algebraically equivalent to close minus open divided by high minus low.

Equivalent reward constructions

An expanded construction averages three bullish range fractions and three bearish range fractions, then subtracts the bearish average from the bullish average.

The same smoothed series can be built by first defining open-based, close-based, and open-close reward components, then averaging each side and subtracting.

Lookback as the plotted forecast

The plotted forecast is a moving average of that constructed series over a defined lookback. Here a moving average is a lookback average of the constructed per-bar series, used to turn the raw balance of market power fraction into a plotted forecast over a chosen sampling interval.

The default length is 14 sampling intervals. Lookback is an editable construction parameter and can be replaced with another chosen number of periods. A simple moving average is an unweighted average of the most recent lookback values of the constructed series.

Dow 14-bar balance of power, 2001

A trader reading the 14-bar average would have stayed on the bullish side of zero for most of the Dow’s February–April 2001 bounce, with only short fades toward the axis in late January and late March. The points were taken from the labeled BOP_14MA scale on the SMARTrader industrials screenshot.
A trader reading the 14-bar average would have stayed on the bullish side of zero for most of the Dow’s February–April 2001 bounce, with only short fades toward the axis in late January and late March. The points were taken from the labeled BOP_14MA scale on the SMARTrader industrials screenshot.Dow Jones Industrial Average · Daily · 2001-01-18T00:00:00.000Z to 2001-05-01T00:00:00.000Z

The plotted forecast is Mov_avg(BOP,14), not the raw bar fraction. Last-bar BOP in the quote pad was −0.7410 with BOP_14MA 0.1849 on 1 May 2001. Digitized from the lower-pane 0.06 grid; y is approximate to about 0.02.

A dual-average baseline

A dual-average overlay of the same constructed series can use more than one lookback, including both a 14-interval and a 95-interval moving average, as an explicit quantitative baseline.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
8 of 15 in the Moving average track
20051-1 pp.Next on Moving averageThree-state moving-average directional breakout constructionFix lookback-length, offset, source-series, and average type before any bar is classified against the moving-average-baseline.
All readings on this track · 15 readings
  1. 1990Building a percent-difference moving-average oscillator
  2. 1991Ease of movement oscillator construction
  3. 1993A twelve-month moving-average filter for inflation direction
  4. 1993Constructing two-endpoint JSA moving averages
  5. 1999Centered moving averages for trend construction
  6. 2000Constructing a slope-corrected moving average
  7. 2000Lookback length as a construction check for the modified moving average
  8. 2001Smoothing balance of market power with a moving average
  9. 2005Three-state moving-average directional breakout construction
  10. 2005Constructing a move-adjusted moving average
  11. 2005Moving-average construction: windows, weights and stops
  12. 2008Constructing stacked moving-average filters
  13. 2011Constructing percentage-offset moving-average bands
  14. 2015Linearity, commutation, and ratio smoothing in moving averages
  15. 2019Constructing a 50-200 sma-channel for swing entries and exits
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