How high is the deviation rate? Master the BIAS indicator to quickly interpret buy and sell signals.

Many investors often ask during trading: what deviation rate is considered high? Actually, the answer to this question is not absolute, but depends on market conditions, individual stock characteristics, and time cycles. Today, we will delve into the practical technical indicator, the Bias (BIAS).

Core Concept of Deviation Rate

What is Bias (BIAS)? In simple terms, Bias is an indicator that measures the deviation between the stock price and its moving average line, expressed as a percentage. When the stock price diverges from the moving average, investors’ psychological expectations change — this is exactly what the Bias reflects about market sentiment.

Bias is divided into two forms:

• Positive Bias: Stock price is above the moving average, reflecting bullish market sentiment
• Negative Bias: Stock price is below the moving average, indicating bearish market sentiment

Imagine the market like agricultural product trading — during a bumper harvest, rice prices soar above historical highs, and farmers rush to sell; during a poor harvest, prices fall below cost, but buyers start large-scale acquisitions. The psychological mechanism in the investment market is exactly the same, where the expectation that “extremes will reverse” drives buying and selling decisions.

How to Calculate Bias?

The formula is simple: N-day BIAS = (Closing Price on Day ( - N-day Moving Average) / N-day Moving Average

Where the moving average is the average of the security’s price over a certain period, commonly called MA (Moving Average line). It’s important to note that because the moving average itself has a lag, the Bias calculated based on it also has a certain lag.

How High is a High Bias? How to Set Parameters

1. Choose Appropriate Moving Average Cycles

• Short-term trading: 5-day, 6-day, 10-day, 12-day moving averages
• Mid-term trading: 20-day, 60-day moving averages
• Long-term investing: 120-day, 240-day moving averages

2. Determine Bias Parameters

Common parameters are 6-day, 12-day, 24-day BIAS. How high Bias is depends on the cycle setting — for example, in a 5-day Bias, exceeding 2% to 3% is generally considered relatively high, but this is not a rigid rule.

When deciding parameters, consider:

• Stock liquidity and volatility (active stocks can use shorter cycles, less active stocks the opposite)
• Current market sentiment (Bull and bear markets show significant differences in Bias behavior)
• Your trading cycle and risk tolerance

3. Set Buy/Sell Thresholds

Before using BIAS, set positive (overbought) and negative (oversold) parameters respectively. In highly volatile markets, these thresholds are frequently broken, so they need to be flexibly adjusted based on historical data and market environment.

Using Bias to Precisely Find Entry and Exit Points

Overbought and Oversold Judgments

• Bias above positive threshold (how high Bias is considered high? exceeding the set threshold indicates overbought) → increased downward pressure → consider selling
• Bias below negative threshold (below the negative threshold indicates oversold) → upward momentum appears → consider buying

Combine with Multiple Moving Averages for Deep Analysis

Relying on a single Bias can lead to misjudgments. Combining the Bias of 5-day and 20-day moving averages allows simultaneous observation of short-term and medium-term trends, improving accuracy.

Divergence Phenomenon Significance

Divergence is a key signal for turning points:

• Price hits a new high but Bias does not reach a new high → possible top signal, beware of downside risk
• Price hits a new low but Bias does not reach a new low → possible bottom signal, increasing rebound chances

Limitations and Forbidden Zones of Bias

1. Limited usefulness in consolidating stocks

When stocks fluctuate slightly or move slowly over the long term, Bias’s guidance diminishes significantly and can generate false signals.

2. Lagging risk

Bias is based on moving averages, which are inherently lagging. It is not recommended to rely solely on Bias for selling signals, but it can serve as a reference for buying.

3. Market capitalization differences affect judgment

Large-cap stocks are more stable, and Bias judgment is more accurate; small-cap stocks are more volatile, and Bias alone becomes less reliable.

Practical Tips to Improve Bias Effectiveness

Combine with Other Technical Indicators

Bias works better when used with stochastic indicators KD, Bollinger Bands BOLL. Bias plus KD is suitable for rebound trading, while Bias plus BOLL is better for oversold rebounds and buy setups.

The Art of Parameter Selection

Too short a cycle can be overly sensitive and generate noise; too long a cycle reacts slowly. Find a balance between sensitivity and stability.

Flexible Application Based on Stock Characteristics

Stable stocks with good performance tend to rebound quickly when falling because investors fear missing opportunities; weak stocks with poor performance may not rebound for a long time, so Bias signals should not be blindly followed.

There is no absolute answer to how high Bias is; only by combining market environment, stock fundamentals, multiple technical indicators, and your own trading style can you truly master the Bias indicator and improve your trading success rate.