Recently, I've been studying stock technical analysis and found that many people misunderstand the BIAS indicator (deviation rate). Actually, it reflects how far the stock price deviates from the moving average line, expressed as a percentage. In simple terms, when the stock price deviates too far from the trend, it’s likely to pull back, which is the core logic of the deviation rate.

Imagine when rice harvests are abundant and prices soar, everyone fears selling too late and starts selling off. Stocks are similar—when prices rise too much, people want to sell; when prices fall too much, people want to buy. The deviation rate is a tool to quantify these expectations.

As for how much to set the deviation rate, that’s where many get stuck. First, choose the period for the moving average line—short-term use 5-day, 10-day, 12-day; mid-term use 20-day, 60-day; long-term use 120-day, 240-day. Then, select parameters based on your trading style—common choices are 6-day, 12-day, 24-day. There’s no absolute answer here because different stocks have different activity levels, and market sentiment is constantly changing.

Regarding specific values for the deviation rate, for example, a 5-day deviation rate can be set around 2% to 3%, but this really depends on historical data and personal experience. In highly volatile markets, the deviation rate tends to frequently exceed thresholds, so flexibility is key. When BIAS exceeds the positive parameter, it signals overbought conditions and you might consider selling; when it falls below the negative parameter, it indicates oversold conditions and you might consider buying.

However, my experience is that relying solely on the deviation rate isn’t enough. It’s better to combine it with the 5-day and 20-day moving averages to observe both short-term and medium-term trends more comprehensively. Also, watch for divergences—if the stock hits a new high but the deviation rate doesn’t, that could be a top signal; conversely, if the stock hits a new low but the deviation rate doesn’t, that might be a bottom signal.

The deviation rate also has limitations. For example, during long periods of slow rise or fall, it becomes less useful. It also has a lagging nature, so it’s more suitable for judging entry points. Relying solely on it for selling signals isn’t recommended. It’s more accurate for large-cap stocks; small-cap stocks tend to show more deviations.

Therefore, in actual trading, it’s best to combine the deviation rate with indicators like the stochastic oscillator (KD) and Bollinger Bands (BOLL). Parameter selection is crucial—too short a period makes it overly sensitive, too long makes it sluggish. Stocks with good fundamentals tend to rebound quickly after declines, while those with poor fundamentals may rebound slowly—this should also be considered.

In summary, there’s no standard setting for the deviation rate; it needs to be adjusted flexibly based on specific stocks and market conditions. It’s a simple and intuitive indicator, but to use it well, you should combine it with other tools to avoid mechanical operations.