Bias

Type

Momentum – Overbought/Oversold Indicator

How does it work?

Bias is an indicator derived from moving averages. It measures the divergence of the price from the moving averages during a price movement.

Granvile J. indicates that prices will eventually move back to the moving average no matter how far the prices diverge away from the moving average.

Trading Signals

The value of the bias is a ratio. If it is below –10, it indicates that the price is far below its moving average and thus is a signal that stocks have been oversold. If it is above 10, it indicates that the price is far above its moving average and thus a signal that stocks have been overbought.

Settings

Sharechart Default: 5, 10, 15 periods

Example

The chart below of National Australia Bank Limited is clearly in a downtrend. The Bias indicator illustrates the oversold and overbought territories very much in sync with the share price fluctuation as it is trending down.

Note: The Bias setting for the chart above is shown below. Also, note you can have up to 3 different period lines on the Bias indicator.