Trading Advanced: How High Is the Deviation Rate? A Must-Read Guide to Using the BIAS Indicator

In technical analysis, the deviation rate (BIAS) is an important tool for judging overbought and oversold conditions of stocks. But many traders share a common question — how high does the deviation rate need to be? When should they enter or exit? Today, we will delve into this question.

Understanding the Essence of the Deviation Rate

How high does the deviation rate need to be? First, you need to understand what this indicator actually measures. Simply put, the deviation rate is the degree of divergence between the stock price and the moving average line, expressed as a percentage. When the stock price deviates significantly from the average cost line, it may indicate a potential pullback or rebound.

The formula is straightforward: N-day deviation rate = (Closing price on the day - N-day moving average) ÷ N-day moving average × 100

For example: If the 10-day moving average is $10, and the current stock price is $11, then the 10-day deviation rate is 10%. So, how high does the deviation rate need to be? The answer is — it depends on the market environment.

How high does the deviation rate need to be: Different standards for weak vs. strong markets

In a weak market environment:

• Deviation rate reaching above 5% → indicates overbought, consider reducing positions
• Deviation rate below -5% → indicates oversold, consider building positions

In a strong market environment:

• Deviation rate reaching above 10% → indicates a stronger overbought signal, be cautious
• Deviation rate below -10% → indicates significant oversold, potential rebound opportunity

The key is understanding: how high the deviation rate is considered high does not have an absolute value but depends on the overall market trend. The same 10% deviation in a strong market may just be a normal correction, while in a weak market it could already be a signal to exit.

Different cycle settings for the deviation rate

The sensitivity of the deviation rate is closely related to the cycle period. Common settings include:

• 5-day or 6-day deviation rate: most sensitive, suitable for short-term trading
• 10-day or 12-day deviation rate: medium sensitivity, suitable for short to medium-term
• 24-day or 30-day deviation rate: less sensitive, better for medium to long-term
• 60-day or 72-day deviation rate: least sensitive, used for identifying long-term trends

Traders should choose the deviation rate cycle based on their trading period. The criteria for how high the deviation rate is considered high will also be fine-tuned according to the cycle.

The meaning of positive and negative deviation

Positive deviation (price above the moving average)

• The larger the value, the greater the short-term profit potential, and the higher the risk of selling
• When the deviation rate exceeds +15%, it usually signals a strong warning

Negative deviation (price below the moving average)

• The more negative, the larger the decline, and the greater the rebound potential
• How high the deviation rate is (in absolute value) should be noted — below -15% could be a good entry point

Practical application: Three steps to judge buy/sell points

Step 1: Confirm the magnitude of the deviation rate Observe whether the current deviation rate has reached overbought or oversold zones. This is the most basic judgment and the first step in answering “how high does the deviation rate need to be.”

Step 2: Combine with other indicators for validation Using deviation rate alone can be lagging; it must be combined with:

• KD indicator → improves rebound accuracy
• Bollinger Bands → better suited for oversold rebounds
• Volume changes → confirm the authenticity of reversal signals

Step 3: Adjust parameters flexibly Avoid fixed parameter settings. Stocks with good performance may rebound quickly even with high deviation rates; stocks with poor performance may delay rebounds. The trigger point for how high the deviation rate is considered high will vary accordingly.

Limitations of the deviation rate you must know

1. Ineffective for stocks with slow rises and falls → For stocks with small fluctuations, the deviation rate has limited effect
2. Lagging indicator → May miss the optimal entry point; better used as a reference for buying rather than selling
3. Market cap differences affect effectiveness → Signals are more accurate for large-cap stocks; small-cap stocks may be manipulated

Three core tips for using the deviation rate

Tip 1: Parameters are not fixed How high the deviation rate needs to be depends on trading cycle and stock characteristics; adjust dynamically. Too short a cycle may generate frequent signals causing false trades; too long may miss reversal opportunities.

Tip 2: Never rely on a single indicator The deviation rate is an auxiliary tool and must be combined with KD, MACD, volume, and other indicators to form a complete system. Especially when judging “how high the deviation rate needs to be,” multiple confirmations can significantly improve success rates.

Tip 3: Set up an alert system Configure deviation rate alerts on your trading platform to continuously monitor your watchlist. This allows you to promptly capture moments when the deviation rate reaches extreme levels, rather than passively observing.

Summary

The answer to how high the deviation rate needs to be ultimately boils down to: In weak markets, 5%/-5% as the boundary; in strong markets, 10%/-10%. But the most important thing is to make a comprehensive judgment based on market environment and other technical indicators. Remember, no single indicator should be the sole basis for decision-making; the deviation rate is just one tool in your trading toolbox.