Balance of Power: A Body-to-Range Ratio
The balance of power indicator takes the close minus the open and divides it by the bar's high minus its low, then smooths the series. It measures how much of each bar's range the body covers, so it is a candlestick reading in numerical form, not a view of order flow.
How it works
The indicator claims to answer who won each bar. It reads where price opened, where it closed and how far it travelled between, then returns one number.
The arithmetic is close minus open, divided by high minus low. The numerator is the gap between the prices that book-end the bar; the denominator is everything price covered.
The numerator can never exceed the denominator, so the output is bounded. Plus one means the bar opened at its low and closed at its high; minus one is the mirror image. Real bars sit between.
That ratio describes the candle body as a share of the bar. A tall body with short wicks reads high; a small body between long wicks reads near zero. It is a candlestick reading expressed as a number.
What the ratio actually measures
On this site’s shared 576-bar history the median body is 0.40 of the bar’s range. The typical bar closes about forty per cent of its travel from its open, so readings cluster mid-scale and true extremes are uncommon.
Bar to bar, that ratio jumps far too much to read. Every published version applies a moving average to it. Smoothing buys legibility, pays in lag, and adds a length parameter you must justify.
The zero line is the only level with an unarguable meaning. Above it the smoothed bars closed up on their opens, below it they closed down. Every other threshold is a convention somebody chose.
Nothing in the formula touches participation. Two bars of identical shape read the same whether one traded thinly and the other heavily, so volume must sit on the chart separately.
In practice
The timeframe decides what a reading represents. On a daily chart each value compresses a whole session; on a five-minute chart, five minutes. Not one measurement.
A gap breaks the assumption the formula rests on. When the open sits far from the prior close, the body measures a jump made while the market was shut. That reading is not comparable with its neighbours.
A proportion cannot tell you where to place a stop. The output has no units, so it says nothing about distance in price. Sizing comes from the range, not the ratio built from it.
Every crossing you act on is paid for before it can be right. A round trip on the shared history costs 0.0098 price units: 2% of a median bar’s range, 45% of the smallest bar. An indicator that flips often is expensive to obey.
Which leaves the honest use: confirmation. It ranks the quality of a move something else found, and does that adequately. It is not a signal generator.
Reading it honestly
The spread matters more than the median. On the shared history the body share is 0.08 at the tenth percentile and 0.75 at the ninetieth: one bar in ten is nearly all wick, one in ten closes near an extreme.
That spread is why one reading tells you little. A value near zero is the ordinary condition of a market that has decided nothing, and it appears constantly. Treating every crossing as an event means trading indecision.
The bounded scale also flattens a real difference. A wide bar and a narrow bar that both close three-quarters of the way up read the same, though one moved far more money. On the shared history the ninetieth percentile range is 6.5 times the tenth.
So read the ratio next to the range, never alone. Take in the bar’s size first, then ask what share the body covered.
What balance of power is not
- Not a measure of order flow. It reads four prices and never sees a single order.
- Not a volume tool. Participation is absent from the formula entirely.
- Not a signal generator. Zero-line crossings are frequent and mostly meaningless.
- Not a position-sizing input. A unitless proportion cannot set a distance in price.
When it fails
Inside a range the line crosses zero over and over. Alternating up and down closes are what a range is, so the indicator faithfully reports a condition in which its own signals have no edge. That is the most common way it loses money.
- On gap bars. The open no longer reflects a continuous market, so the body measures something else.
- On very small bars. A tiny denominator produces an extreme reading from a move that barely happened.
- After a smoothing change. Lengthening the average removes noise and the timeliness that was the only argument for the tool.
- In a strong trend with deep wicks. Long tails compress the ratio while the trend is intact, so the reading contradicts the chart.
- At the close of a session. Auction and settlement mechanics move the closing print for reasons unrelated to the bar.
- Whenever it is the only input. Confirmation tools fail hardest once promoted to decision tools.
The original data
The figures here come from research/series-measurements.json, produced by
site/measure_series.py over this site’s shared 576-bar history. Body as a share of range: median
0.40, tenth percentile 0.08, ninetieth percentile 0.75. Bar ranges: median 0.493, tenth percentile
0.17, ninetieth 1.101, smallest 0.022, largest 2.338. The round-trip cost of 0.0098 price units
exceeds 10% of a bar’s range on 15 of the 576 bars, and the series has no opening gaps.
Those numbers say extremes are rare and the middle is crowded. A median of 0.40 against a ninetieth percentile of 0.75 means a decisive bar is unusual, so the line mostly drifts around a level carrying no instruction.
research/corpus-coverage.json says something else again. Across 31,760 videos, “balance of
power” appears in 2 titles from 1 channel at a median of 24 views, against 311 videos and 173
channels for “bollinger bands” and 154 across 99 for “ichimoku”. So check the bar under the line:
measure its range against the recent median, and discard readings from smaller bars.
Related
Candlesticks are the parent of this indicator: the body and wick relationship it measures is what a candlestick chart already draws. Reading bar shape yourself makes the numerical version largely redundant. Start there.
Momentum indicator measures the size of a move rather than its shape, the dimension balance of power discards by dividing. The two answer different questions and disagree often. Side by side they show where the ratio loses information.
Volume analysis supplies the participation figure this formula never touches. A decisive-looking bar on thin trade and the same bar on heavy trade mean different things. If the name appealed to you, this gets closer.
I used balance of power for about a year before I noticed I was reading the candles anyway and then checking whether the line agreed with me. It never once told me something the bar itself had not already shown, which made me wonder what I was actually paying attention to. What it did do was stop me talking myself into a move on a bar that closed nowhere near its extreme. I keep it on one chart now, small, at the bottom, and I ignore it whenever the bar is tiny.
— Michael Whitman
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