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Balance of Power

BOP is the exclusive intellectual property of Worden Brothers, Inc. It was developed by Don Worden, a leading technical innovator and writer dating back to the nineteen fifties. In 1994 he was the recipient of the award for significant contribution to technical analysis, given annually by the Market Technicians Association.

BOP tells you whether the underlying action in the trading of a stock is characterized by systematic buying (accumulation) or systematic selling (distribution). The single most definitive and valuable characteristic of BOP is a pronounced ability to contradict price movement. BOP goes far beyond the "divergences" that many technical indicators are capable of. In divergence analysis, the price and the indicator tend to move together. A divergence is detected when, for example, the price makes a new high and the indicator fails to confirm.

BOP is capable of outright contradiction. Thus, while the price is attaining new highs, BOP may very well be attaining new lows. It is not unusual for BOP to move in the exact opposite direction of price.

BOP is plotted above and below a zero line. However, it is not an oscillator. It does not swing up and down with the price. It goes its own way, often quite independent of price movement. When BOP is above the zero line, it is depicting systematic buying. When it is below the line, it is revealing systematic selling.

For convenience, BOP is plotted in color. Green signifies dominant buying, red dominant selling. When BOP is close to the zero line, revealing no clear dominance of either buying or selling, it is plotted in yellow. (This is all patterned after stop and go lights). For even greater convenience, the price bars are plotted in the same colors as the corresponding BOP bars below. It is possible to interpret BOP using only the colored price bars. This is a boon to those who have difficulty rectifying the spatial relationships inherent in chart reading.

BOP fits into a category of devices that can be termed "trend quality" indicators. A variety of methods lead naturally to buy and sell signals. What BOP tells you is something about the quality of the underlying trend. Not itself a pinpoint timing indicator, BOP will modify your assessment of the vital risk-reward ratio of a trade or investment. It will help you determine whether the supply-demand balance will be in your favor. It will help you spot changes of character in a stock's action.

Why isn't BOP a perfect indicator? First, because there is no such thing. What BOP does, it does extremely well. BOP brings out hidden patterns of accumulation or distribution, and it does so with great reliability. But you see, a significant increase in price is not the inevitable result of informed accumulation. Distribution does not inevitably lead to a collapse in price. Even well informed buyers and sellers can be wrong about future price trends. BOP offers an inside glimpse of informed accumulation or distribution, not a sure-fire key to riches.

Let us just say that if you invest consistently in the same direction as informed money, your chances of success will increase significantly. Watch particularly for changes in character at potential tops and bottoms. Be suspicious of stocks in which BOP hasn't worked well. If the BOP pattern was misleading in the past, it will probably continue to be so in the future. Look for charts where BOP has shown selling at tops and buying at bottoms. Look for honest charts and avoid the double-crossers.

The BOP scale runs from 100 to -100. The indicator itself can rise above or below these extremes, but it is relatively rare. When it happens, we just truncate the profile at the top or bottom of the chart. Since the scale is consistent from chart to chart, you are able to make direct comparisons from stock to stock. Some will ask, which is the most important: (1) Whether BOP is above or below the zero line? Or (2) whether the direction of the BOP profile is up or down, which is to say, whether BOP is improving or deteriorating? Of first importance is whether BOP is above or below the zero line. This indicates dominant buying or selling on an absolute basis. However, a positive BOP with a deteriorating pattern can be significant as well. But only in a divergent situation. Thus a positive BOP moving down in tandem with an eroding price could not be interpreted bearishly. But a positive BOP moving down into a rising price must be construed bearishly. This would be all the more so if the price is actually attaining new highs. Conversely, a positive BOP moving up into a falling price should be interpreted as a positive, and all the more so if the price is breaking so-called "support levels." Where absolute BOP versus improving or deteriorating BOP seem to be contradictory, you will often find that the answer lies in the time implications. Absolute BOP (green or red) usually has the longer-term implications.

One last point. Before you arrive at a decision on any stock, check BOP (as well as all other indicators you find useful) in a variety of time frames. Even if you are a so-called day-to-day "scalper," you will benefit greatly by being aware of a stock's pattern over a period of at least five years. "Tips and Hints" in the Worden Report often features examples of BOP interpretations. These demonstrations are often written by Don Worden himself.

NOTE: Balance of Power can only be used to analyze stock charts. It is not available for mutual funds.

For scanning purposes, Green BOP represents values greater 30, Yellow BOP represents values from 30 to –30, and Red BOP represents values less than –30.

Read Don Worden's Evolution of the Cumulative MoneyStream and Balance of Power for more insight into how BOP was developed.

Time Segmented Volume

A proprietary technical indicator developed by Worden Brothers, Inc. TSV is an oscillator, which is calculated by comparing various time segments of both price and volume. TSV essentially measures the amount of money flowing in or out of a particular stock. The horizontal line in the middle, which extends across the entire length of the indicator window, represents the zero line. When TSV crosses up through the zero line it signals positive accumulation or buying pressure. This action is considered bullish. Conversely, when TSV crosses below the zero line it indicates distribution or selling pressure, which typically precedes a move down in price.

Another important thing to look for when interpreting TSV is a contradiction of trends between price and TSV. Look for positive or negative divergences between price and TSV in order to determine potential tops and bottoms. Several consecutive divergences increase the reliability factor in trying to pinpoint price reversals. For instance, if price has been making successively higher highs while TSV has been making successively lower highs, this would constitute a series of negative divergences. This would be an indication of a possible top.

TeleChart gives you the ability to calculate a TSV on a wide variety of moving averages, which simply allows you to smooth the indicator, thereby filtering out the less significant swings. You will notice that as you increase the value of the moving average (and this applies to any indicator, not just TSV) the result is a smoothing effect. However, there is a trade-off. As you increase the length of the moving average, the indicator becomes less sensitive to daily fluctuations. And as a result, the indicator will have a greater tendency to lag price.

One of the new features of this indicator is the ability to calculate a moving average of another moving average. This addition has made TSV more effective and easier to use. Now you can calculate a moving average of an already smoothed TSV and use it much in the same way the MACD indicator is used. Positive and negative TSV crossovers are one more thing to consider when trying to form an opinion on a particular stock or market index.

Example Settings:

Short Term Trading: TSV period between 9 and 12

Intermediate Term Trading: TSV period between 18 and 25

Long Term Trading: TSV period between 35 and 45

MoneyStream

The Cumulative MoneyStream (CMS) was also developed by award-winning technician Don Worden and is the exclusive intellectual property of Worden Brothers, Inc. The MoneyStream grew out of joint venture with a large regional brokerage firm to develop a price/volume indicator. The result is an indicator with much the same objectives as OBV. CMS is interpreted in the same way you would interpret OBV. Generally, you look for divergences.

Important divergences can be seen at a glance, owing to our use of automatic linear regression lines in both the price and indicator profiles. The chart is setup so that you can make direct comparisons between the slopes of the price regression lines and the indicator regression lines. (However, do not neglect to look closely for movements not necessarily reflected in the regression line, which is meant as a help, not a crutch.) If the CMS regression lines are sloping upward at greater angles than those of the price, the message is bullish. And vice versa.

The main difference between OBV and CMS is that CMS has a greater ability to contradict price movement than OBV does. This is achieved by using all of the elements within the daily price bar rather than just the close. The high, low, close and daily range are related to volume in a unique and proprietary way. You may wish to compare CMS and OBV in a variety of stocks and time frames. Generally you will find that CMS has the greater predictive power. But not always. Sometimes OBV does the better job. The more things you look at, and the more time frames you habitually check out, the better you are going to do.

The MoneyStream was developed after years of experience with price-volume indicators. In addition to Joe Granville's OBV, ideas by David Bostian and Mar Chaikin were influential in the formulation. The final result embodies a method of filtering out what is believed to be a logical error in the preceding indicators. CMS is not as volatile as Bostian's and Chaikin's creations and it has more power to contradict than OBV.

CMS works very well in conjunction with BOP. CMS and BOP are based on entirely different concepts and sometimes they disagree completely. The idea is to wait for mutual confirmation. Together they are potent medicine. CMS lends itself better to precise timing than BOP. This is because CMS is affected considerably by the price trend itself. BOP, on the other hand, is incomparable at ferreting out hidden patterns of accumulation or distribution.

MoneyStream has the option to be plotted with 30- and 100-period linear regression lines on the MoneyStream graph and the price graph so you can compare the trends of the two graphs.

Read Don Worden's Evolution of the Cumulative MoneyStream and Balance of Power for more insight into how MoneyStream was developed.