Bias Divergence Rate Practical Guide: How to Use Positive and Negative Parameters to Find the Best Buying and Selling Opportunities

In stock market investing, technical analysis is a powerful tool for many traders, and BIAS (Bias Rate) is an important indicator that reflects market psychological expectations. Many investors often ask: what level of bias rate is considered high? How can one profit from bias rate? This article will provide a comprehensive analysis from a practical perspective.

The Core Logic of Bias Rate: Early Warning of Overbought and Oversold Conditions

What is BIAS? In simple terms, it measures the “degree to which the current stock price deviates from its moving average,” expressed as a percentage.

Investors’ expectations determine market trends. When stock prices rise excessively, people worry about risks and consider selling; when prices fall too deeply, investors anticipate a rebound and look for buying opportunities. This psychological phenomenon of “extreme reversal” is the basis of the bias rate:

• Positive Bias Rate (price above the moving average): the price has risen and may face a pullback
• Negative Bias Rate (price below the moving average): the price has fallen and may rebound

How to Calculate Bias Rate and Moving Averages

The calculation formula for bias rate is straightforward:

N-day BIAS = ((Closing Price of the Day - N-day Moving Average Price)) / N-day Moving Average Price × 100%

Where, the N-day moving average is the average of the stock’s closing prices over the past N trading days. Since the moving average itself has a lagging nature, the bias rate calculated based on it will also have some delay, which should be taken into account during use.

How High Is the Bias Rate? The Key to Parameter Settings

To effectively use the bias rate indicator, first determine appropriate parameters.

1. Choosing the Moving Average Period

Different periods suit different investment styles:

• Short-term traders: 5-day, 6-day, 10-day, 12-day moving averages
• Mid-term holders: 20-day, 60-day moving averages
• Long-term investors: 120-day, 240-day moving averages

2. Setting Positive and Negative Thresholds

What bias rate levels are considered high or low? This depends on individual stock characteristics and market environment:

• For 5-day bias rate, common thresholds are between 2%–3%
• For 12-day bias rate, thresholds may be around 3%–5%
• For 24-day bias rate, thresholds may be around 5%–8%

Stocks with high volatility tend to break through these thresholds more easily, so adjustments should be flexible. Highly active stocks can use shorter periods for more sensitivity; less liquid stocks should use longer periods for stability.

3. Considering Multiple Factors

• Liquidity and volatility of the selected stock
• Overall market sentiment (bullish or bearish)
• Personal trading cycle and risk tolerance

Practical Methods for Using Bias Rate to Find Buy and Sell Points

Buy Signal:

• When the bias rate falls below the set negative threshold, indicating oversold conditions and potential bottom formation, consider buying.
• For example: when the 5-day bias rate drops below -3%, it often signals a short-term excessive decline and increasing rebound momentum.

Sell Signal:

• When the bias rate exceeds the positive threshold, indicating overbought conditions and possible correction, consider selling.
• For example: when the 5-day bias rate exceeds +3%, the short-term rally may be overextended with downward pressure.

The Significance of Divergence:

Observing divergence can provide stronger signals:

• Price hits a new high but the bias rate does not → top signal, potential reversal downward
• Price hits a new low but the bias rate does not → bottom signal, potential rebound

Combining bias rates of multiple moving averages, such as the 5-day and 20-day, can give a more comprehensive view of short-term and medium-term trend changes.

Limitations of Bias Rate You Must Understand

1. Limited Effect in Weak Market Trends

When stocks are in a prolonged slow-up or slow-down with small fluctuations, the bias rate’s judgment space shrinks significantly, reducing the reliability of signals.

2. Lagging Nature

Bias rate is based on historical prices and inherently lagging. Therefore, it is not highly recommended to rely solely on bias rate for sell signals, but it can be an important reference for buy decisions.

3. Market Capitalization Impact

Large-cap stocks tend to be more stable, and bias rate judgments are more accurate; small-cap stocks are more volatile and uncertain, making bias rate alone insufficient to determine their trend.

Recommendations for Enhancing the Effectiveness of Bias Rate

1. Use Multiple Indicators

Do not rely solely on bias rate; combine it with other technical indicators like stochastic oscillators, Bollinger Bands, etc. The combination of bias rate and Bollinger Bands is especially suitable for buying during oversold rebounds.

2. Balance Parameter Selection

Too short a period can lead to overly sensitive signals and false positives; too long a period may respond slowly and miss opportunities. Adjustments should be made based on individual stock characteristics through repeated testing.

3. Flexibly Adapt to Different Stocks

Stocks with steady performance and lower risk tend to rebound quickly when falling, as investors fear missing the buy point and quickly enter; stocks with average or unstable performance may require longer time to initiate a rebound.

BIAS is a simple and practical analytical tool. Mastering its logic and continuously adjusting parameters based on market experience can make it a powerful assistant in improving trading decisions.