Understanding the Bounce Strength Indicator (BSI) for MetaTrader 5

Author: fxborg

The Bounce Strength Indicator (BSI) is a nifty tool that measures the strength of price bounces, following the principles of the Wyckoff method. If you're looking to enhance your trading strategy, this might just be what you need!

After a stock makes a move higher, it often enters a phase of flat consolidation around a clear support level. As a trader, it’s crucial to keep a keen eye on the action as prices approach this support. A significant surge in volume off support, often referred to as a 'springboard,' is one of the first signals that a major uptrend could be on the horizon and that a breakout from consolidation is coming.

How to Measure the Strength of a Bounce?

To determine the strength of a bounce, you can use the following formulas:

Strength of bounce up from lows:
(close - low) * (ceiling - low) / range spread

Strength of bounce down from highs:
(high - close) * (high - floor) / range spread

What This Means:

The greater the rise from a lower price point, the stronger the buying pressure.
The greater the fall from a higher price point, the stronger the selling pressure.

While this concept is straightforward, it can serve as a leading indicator for range breakouts, especially when operating within a trading range.

How the Indicator Displays Information:

Plus histogram — indicates the strength of the bounce up from lows;
Minus histogram — indicates the strength of the bounce down from highs;
Middle line — represents the average difference between the plus and minus histograms.

This indicator was originally developed in MQL4 and was first introduced in the Code Base on February 4, 2016.

Figure 1. The BSI indicator

Understanding the Bounce Strength Indicator (BSI) for MetaTrader 5

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