Bias Deviation Rate (BIAS) Investment Guide: From Parameter Settings to Practical Buy and Sell Point Applications

Quick Start: The Practical Role of Bias in Trading

Many traders have heard of Bias but are unclear on how to use it. Simply put, Bias is a technical tool used to determine when stock prices are overextended in either direction. When prices deviate significantly from moving averages, reversal signals often occur. Understanding the details of Bias settings is the first step to mastering this indicator.

Core Concept of Bias

Bias (BIAS) reflects the “degree of deviation between the stock price and the moving average,” expressed as a percentage. It reveals the collective market expectations—when expectations are overly optimistic or pessimistic, prices tend to diverge from the mean and then revert to it.

Bias is divided into two categories:

• Positive Bias: Price above the moving average, market sentiment is optimistic
• Negative Bias: Price below the moving average, market sentiment is pessimistic

Understand Bias logic through real-life examples

Imagine a bumper harvest year for rice, with market prices soaring to historic highs. Farmers see these “sky-high” prices and worry about a sudden crash, so they start selling off. Buyers, seeing increased supply, also hold back. Eventually, prices fall back—this illustrates what Bias aims to explain.

Similarly in the stock market: When prices rise excessively, investors expect a decline and sell; when prices fall sharply, investors anticipate a rebound and consider buying.

Bias Calculation Formula and Moving Averages

Bias calculation is straightforward:

N-day BIAS = (Closing Price on Day ( - N-day Moving Average) / N-day Moving Average

Where the moving average is the average price over a specified period. Moving Averages (MA) are fundamental tools in technical analysis, used to observe short-term price trends, but they are lagging indicators, so Bias also carries a certain time delay.

Key to Bias Settings: Choosing the Right Period Parameters

How much Bias period is appropriate? It depends on your trading style and market environment.

) 1. Selection of Moving Average Periods

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

2. Recommended Bias Parameters

Common parameters are 6-day, 12-day, 24-day. When choosing parameters, consider:

Specific stock characteristics

• Highly liquid stocks: suitable for short-period Bias (more responsive)
• Less liquid stocks: suitable for longer-period Bias (to avoid false signals)

Overall market sentiment

• Bull markets: shorter parameters to catch rebounds
• Bear markets: longer parameters to avoid frequent stop-loss signals

3. How to set threshold levels

For example, a 5-day Bias threshold is usually set around 2%–3%, but should be adjusted based on:

• The stock’s historical volatility
• Your personal trading experience
• Market volatility changes, which require flexible adjustments

In highly volatile markets, Bias often exceeds preset thresholds; in such cases, combine with other indicators rather than operate mechanically.

Practical Methods to Find Buy/Sell Points Using Bias

Basic trading logic

After setting parameters, trading signals become clear:

• Bias exceeds positive threshold → Overbought, market may face downward pressure, consider reducing holdings or selling
• Bias falls below negative threshold → Oversold, market may rebound, consider entering or buying

Advanced application: Multiple moving averages resonance

By observing Bias for 5-day and 20-day periods simultaneously, you can grasp both short-term and mid-term trends:

• Short-term Bias reverses first, followed by mid-term Bias, signals are stronger
• Divergence between the two warrants extra caution, possibly indicating a trend change

Divergence analysis—finding hidden turning points

This is an advanced Bias technique:

• Top divergence: Price hits new highs but Bias does not reach new highs → Potential sell signal
• Bottom divergence: Price hits new lows but Bias does not reach new lows → Potential buy signal

Limitations of Bias and Clarifications

1. Ineffective for stable stocks: Stocks with long-term slow movements have limited Bias signals
2. Lagging risk: May cause delayed buy/sell points; better as a reference for entries rather than the sole basis for exits
3. Market cap differences: Large-cap stocks with regular volatility are more predictable with Bias; small-cap stocks are more uncertain, relying solely on Bias can lead to errors

Three Important Reminders in Practice

1. Must combine with other indicators

Bias alone cannot make decisions. Common combinations:

• Bias + Stochastic Indicator (KD) = More precise rebound signals
• Bias + Bollinger Bands (BOLL) = More reliable oversold rebounds

2. Parameter selection is crucial

Too short a period causes over-sensitivity and frequent signals; too long causes sluggishness and missed opportunities. Repeated testing helps find your optimal setting.

3. Flexibly judge based on stock quality

• Stable, low-risk stocks: quick rebound after decline (investors rush to buy)
• Poor performance, high-risk stocks: slow rebound after decline (market remains cautious)

Summary

There is no absolute standard for Bias settings; the key is understanding the underlying market psychology. Mastering parameter adjustments, recognizing buy/sell signals, and combining with other indicators will enable effective use of this simple yet practical technical tool. The essence of trading is to find probabilistic advantages amid uncertainty, and Bias is one of the indicators helping you identify such imbalances.