Do you want to know an easy way of eliminating market noise so you can identify the dominant trends in the foreign exchange market? If you do, then, you need to get the lowdown on the Bullish Percent Index. It discusses the market reality; as optimistic as you want to be, you have to accept the fact that you have no control over market direction. If the prices rise or go down against your favor unexpectedly, feeling defeated is a usual reaction; however, you have to gather yourself and formulate a new trading strategy.
BPI 101 The Bullish Percent Index (or BPI), with its basis on Point and Figure signals, is a breadth indicator. It encourages the fine-tuning of trading signals; rather than rely on possibly false indications, it is recommended that there should be price confirmations at (at least) one point. Abe Cohen was the developer of the Bullish Percent Index. When he first introduced it to forex traders in the 50s, he addressed the importance of the employment of a straightforward tool; although fancy and more challenging indicators can be used as well, the focus should be on the clarity of the trends. It’s Calculation Time For the calculation of the Bullish Percent Index, only 2 data types are required; you need to determine the number and total number of stocks, and the Point and Figure buy signals. Since it dwells on the concept that the Point and Figure signals are indicative of either buying positions or selling positions, it stresses the significance of monitoring buy signals exclusively. The formula: **representation: n = number of stocks BPI = n X (Point and Figure buy signals) ÷ total n As the Signals Say In usual cases, when the Bullish Percent Index gives a reading of at least 50%, buy signals are almost everywhere; it is suggestive of a dominant Point and Figure set of buy signals. It’s not a risky market, and you should pursue a buying position. Granted that the conditions don’t exceed 70 % (i.e. it is indicative of an overbought position), you’re faring the seas of a “safe” bullish market. Signals: Bull alert – buy signals are under 30% and an uptrend is about to be formed Bull confirmation – buy signals are at least 50 % Bull correction – buy signals are either too high or about to initiate a downtrend Author info: Mr. Sharma from MTrading India has contributed in this post, he writes mostly for top Forex blogs and portals like Investopedia etc.