What is the Bias Ratio?
Bias Ratio (BIAS) is one of the technical analysis indicators. The bias ratio is the degree of distance between the exchange rate price and the MA. It is the difference between the current price minus the MA value. Bias ratio is not only used to measure the degree of which the current price level deviates from the MA, but also mainly used to analyze whether there is overbought or oversold in the short term.
The calculation of Bias Ratio
Bias ratio = (Current price – MA) ÷ MA
The bias ratio is an indicator to measure the distance between the current price and the MA, which is the percentage of the current price deviating from the MA. The degree of deviation helps to predict the stock price behavior.
How to determine the Bias Ratio?
The bias ratio is used to judge whether the exchange rate is overbought or oversold. The MA represents the trend of a certain period of time, so the price will gradually approach the MA. If the price moves away from the MA, the probability of the price correcting towards the MA increase significantly.
The bias ratio can be divided into positive bias and negative bias. If the price is above the moving average, it is called the positive bias. On the contrary, if the price is below the MA, it is called the negative bias.
- Positive bias: Price > MA, indicating overbought and might have downward or pressure.
- Negative bias: price < MA, indicating oversold, there will be a rising or rebound possibility.
From another point of view, the larger the positive bias, the greater the short-term profit, and the higher the probability of profit-taking, thus causing the price to fall. Therefore, when the negative value of the bias ratio is larger, the higher probability of covering a short order. After the price falls deep, it will also attract long-order to enter the market, so there will be a deep rebound.
Simply put, it is
1. When the stock price shows a “positive bias”, do not trade a Long position, because there could be a downward trend for the stock price in the coming days
2. When the stock price shows a “negative bias “, do not trade a Short position, there may be a rebound for the stock price in the next few days
What should we pay attention to when using the bias ratio to determine the buying and selling signals?
Because the stock price tends to the mean at most of the time, the future trend can be inferred from the bias ratio. However, investors should notice that, when a stock is in a slow incline, slow decline, or consolidation, the bias ratio may not be effective, and it needs to be combined with other technical indicators to make a comprehensive judgment.
For example, when investors decide to find the opportunity to enter the market by using the bias ratio with the Bollinger Band, it is necessary to notice whether the Bollinger Band indicator is slowly converging, which may spread upward or downward, and the short-term moving average crosses the long-term moving average from bottom to top. When using technical indicators, investors could match with several technical analysis tools such as K-line charts, stochastic indicators KD, Bollinger Bands, etc., and make regular adjustments and corrections, in order to improve the winning rate probability in investment.
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Investing a small amount of money will bring greater benefits, but may also bring greater risk of loss.
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