TA Challenge: BIAS!
Hello everyone! I am here to take the challenge for BIAS indicator!
This is absolutely a very powerful indicator to use. Thank you @Meta Moo to set up this challenge.
Let's start!
PART 1: Get the concept right:
In fact, this indicator is not so easy to understand. Let me try to make it simple to get the principle right:
Definition of BIAS indicator:
Deviation rate BIAS is a technical indicator derived from the moving average. It is mainly in the form of a percentage to measure the degree of price deviation from the moving average in fluctuations.
Let us look for a chart with a simple moving average of daily-30, using $SPDR S&P 500 ETF (SPY.US)$ chart:
This is absolutely a very powerful indicator to use. Thank you @Meta Moo to set up this challenge.
Let's start!
PART 1: Get the concept right:
In fact, this indicator is not so easy to understand. Let me try to make it simple to get the principle right:
Definition of BIAS indicator:
Deviation rate BIAS is a technical indicator derived from the moving average. It is mainly in the form of a percentage to measure the degree of price deviation from the moving average in fluctuations.
Let us look for a chart with a simple moving average of daily-30, using $SPDR S&P 500 ETF (SPY.US)$ chart:
There are 2 major observations:
i) The stock tends to move back to the moving average
ii) The moving average acts as support or resistance.
Thus, the easiest way to understand BIAS is the different between the price with the moving average (the white line). The bigger the distance between the stock price with the moving average, the bigger the deviation or the BIAS. If the stock is below the moving average, the BIAS is negative; if the stock is above the moving average, the BIAS is positive.
Let's see the illustration below for a better view:
i) The stock tends to move back to the moving average
ii) The moving average acts as support or resistance.
Thus, the easiest way to understand BIAS is the different between the price with the moving average (the white line). The bigger the distance between the stock price with the moving average, the bigger the deviation or the BIAS. If the stock is below the moving average, the BIAS is negative; if the stock is above the moving average, the BIAS is positive.
Let's see the illustration below for a better view:
The indicator below is BIAS (30MA). Note on the red arrows part, and check with the price chart above. You may notice that the bigger gap between the price with the moving average, the bigger value of the BIAS indicator. Please also note that the white color line is 0 bias, which indicates the price is at the moving average. Green arrow indicates positive bias, where the price is above the MA, and it will be shown at the positive half of the BIAS indicator. In contrast, red arrow indicates negative bias, where the price is below the MA, and it is shown at the negative half of the BIAS indicator.
In addition, do you notice that the white line serves as a nice support and resistance?
Next, let us see how to use the BIAS indicator to anticipate a short term price movement.
See the chart below: You may notice that after the stock is moving far above the moving average, it will bounce up or snap back to the moving average, indicated in the yellow circle.
In addition, do you notice that the white line serves as a nice support and resistance?
Next, let us see how to use the BIAS indicator to anticipate a short term price movement.
See the chart below: You may notice that after the stock is moving far above the moving average, it will bounce up or snap back to the moving average, indicated in the yellow circle.
Let us compare to the BIAS indicator as below:
You may notice that the green circle at the negative half of the BIAS indicator is near to the low, where the price bounced back later.
In contrast, the red circle at the positive half of the BIAS indicator, is near to the top, where the price snapped back to moving average later.
The RISK/DANGER:
Ok, then it may look like quite straight forward, we just buy at the bottom of the negative half of the BIAS, and sell at the 0 bias; or sell our positions at the top of the positive bias, then buy back at the 0 bias.
But please keep in mind that:
i) Market analysis does not equal to buying/selling point!
ii) Market analysis does not equal to buying/selling point!
iii) Market analysis does not equal to buying/selling point!
It is very important thus I need to mention for 3 times. Almost all technical analysis is "retrospective" , thus it looks a lot easier to identify a top, bottom or a turning point. It is NOT TRUE for the live or current market.
For example, check the $NIO Inc (NIO.US)$ stock as below:
In contrast, the red circle at the positive half of the BIAS indicator, is near to the top, where the price snapped back to moving average later.
The RISK/DANGER:
Ok, then it may look like quite straight forward, we just buy at the bottom of the negative half of the BIAS, and sell at the 0 bias; or sell our positions at the top of the positive bias, then buy back at the 0 bias.
But please keep in mind that:
i) Market analysis does not equal to buying/selling point!
ii) Market analysis does not equal to buying/selling point!
iii) Market analysis does not equal to buying/selling point!
It is very important thus I need to mention for 3 times. Almost all technical analysis is "retrospective" , thus it looks a lot easier to identify a top, bottom or a turning point. It is NOT TRUE for the live or current market.
For example, check the $NIO Inc (NIO.US)$ stock as below:
The white circle indicates the top of the positive half- a high probability to snap back. If you check on the white arrow, will you sell your position, or even doing short sell?
Too bad. The stock moved higher! If we sold the position, we missed a big run! If we short sell, we losing money!
Oh well, now the BIAS is showing even higher positive deviation. Will you sell?
Too bad. The stock moved higher! If we sold the position, we missed a big run! If we short sell, we losing money!
Oh well, now the BIAS is showing even higher positive deviation. Will you sell?
If we sell, we are even missing a much bigger move, and the deviation is higher and higher!
Thus, as most of the technical indicators, we should never use BIAS alone to determine our buying and selling points.
Below is my way to use BIAS on market analysis or even determine the buying points, for both long term and short term investment/trading.
Long term investment:
Using $Microsoft (MSFT.US)$ as an example here.
For long term investment, I prefer to use weekly chart. Thus, the white line here indicates a weekly-30 moving average.
Next, draw a straight line at 0 for the BIAS indicator.
For long term investment, it is very easy. As long as the BIAS indicator is above the 0, we can just buy whenever it dips near to the moving average, or any point you like. The reason is because weekly chart indicates a longer term period, and thus BIAS >0 is showing a strong uptrend.
Below is my way to use BIAS on market analysis or even determine the buying points, for both long term and short term investment/trading.
Long term investment:
Using $Microsoft (MSFT.US)$ as an example here.
For long term investment, I prefer to use weekly chart. Thus, the white line here indicates a weekly-30 moving average.
Next, draw a straight line at 0 for the BIAS indicator.
For long term investment, it is very easy. As long as the BIAS indicator is above the 0, we can just buy whenever it dips near to the moving average, or any point you like. The reason is because weekly chart indicates a longer term period, and thus BIAS >0 is showing a strong uptrend.
For the recent market, we can see that early January the stock price was dips below the BIAS=0, crossed into the negative deviation half of the BIAS indicator.
This signifies a warning to us. We should stop adding any share, or even to profit take or cut loss for the long positions we are holding.
Now, the market is at the critical stages, where the price is now touching the MA30 again- we can also see the BIAS indicator is near to zero.
Next week is critical. We shall see if the stock can break above the BIAS=0 and crosses to the positive deviation half.
Now, the market is at the critical stages, where the price is now touching the MA30 again- we can also see the BIAS indicator is near to zero.
Next week is critical. We shall see if the stock can break above the BIAS=0 and crosses to the positive deviation half.
Short term investment
As I have mentioned, one indicator is not enough to make a buy or sell decision.
As I have mentioned, one indicator is not enough to make a buy or sell decision.
But, if we manage to find another one that is complement to the other indicator, they can work wonder!
Here, I would introduce RSI, relative strength index to compliment the BIAS indicator.
Unlike BIAS, a lagging indicator, RSI is a leading indicator.
Here, I am going to use $ARK Innovation ETF (ARKK.US)$ as example.
Look on the white circle. The BIAS indicator is at a very negative deviation, while RSI is at oversold region of 20-22.
This signifies a strong signal that the stock may rebounce very soon.
Here, I would introduce RSI, relative strength index to compliment the BIAS indicator.
Unlike BIAS, a lagging indicator, RSI is a leading indicator.
Here, I am going to use $ARK Innovation ETF (ARKK.US)$ as example.
Look on the white circle. The BIAS indicator is at a very negative deviation, while RSI is at oversold region of 20-22.
This signifies a strong signal that the stock may rebounce very soon.
Thereafter, as shown in the chart below, ARKK had a super nice run!
How about the selling signal?
Let us use the $NIO Inc (NIO.US)$ example that we discussed previously again.
Now, instead of using BIAS indicator only, let us add on RSI together:
Check the white circle on the RSI indicator (the last column), do you notice that they are not even at overbought region of 80 although BIAS has reached the top? In this case, we know that it is still early to sell.
Next, let us fast forward to the RED color, where BIAS is also at top, while RSI is now >80. This signifies the stock is overbought, and very far from the moving average! At this time, this gives a very strong signal that the stock is due for a correction.
Indeed, look on the chart below, NIO then crashed for 34%!
Next, let us fast forward to the RED color, where BIAS is also at top, while RSI is now >80. This signifies the stock is overbought, and very far from the moving average! At this time, this gives a very strong signal that the stock is due for a correction.
Indeed, look on the chart below, NIO then crashed for 34%!
That is all I would share for the BIAS. Another usage is to use three BIAS indicator, and check for the cross over. The general principle is simlar to the moving average cross over: When short term indicator crosses above the long term one, it signifies the short term trend changes, and vice versa.
Thank you and see you in the next post!
Thank you and see you in the next post!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
learn investing in my YouTube channel at "JM investment journal"
6616Followers
25Following
4678Visitors
Follow