Recently, a friend asked me how to determine when to buy or sell stocks, and I thought of a very practical indicator—Bias (BIAS). Actually, many people have heard of it, but few truly understand it. Today, I want to share my insights with everyone.

In simple terms, Bias is an indicator used to measure the deviation of stock prices from moving averages. When stock prices rise too excessively or fall too dramatically, Bias will send signals. Imagine if rice harvest prices surge, farmers will definitely rush to sell; conversely, if prices bottom out, buyers will purchase in large quantities. The psychology of the stock market is similar.

Bias comes in two types—positive Bias and negative Bias. When the stock price is above the moving average, it’s positive Bias; below, it’s negative Bias. The calculation is actually simple: subtract the moving average from the closing price of the day, then divide by the moving average.

Regarding parameter settings, this is crucial. Short-term usually uses 5, 10, or 12-day moving averages; medium-term uses 20 or 60 days; long-term uses 120 or 240 days. The specific choice depends on whether you are a short-term or long-term investor. If stocks are highly volatile, using short-cycle Bias will be more sensitive; if volatility is low, longer cycles are more stable.

How to use Bias to find buy and sell points? First, set a positive threshold and a negative threshold, such as 2% or 3%. When Bias exceeds the positive threshold, it indicates overbought conditions and a potential decline, so consider selling; conversely, if Bias falls below the negative threshold, it indicates oversold conditions and a potential rebound, which is a buying opportunity. But these thresholds are not fixed; they should be adjusted flexibly according to market conditions.

My personal experience is that it’s best to look at multiple moving averages together. For example, observing Bias of both 5-day and 20-day moving averages can give a more comprehensive view of short-term and medium-term trends. Also, divergence situations are very important—if the stock price hits a new high but Bias does not, it could be a top signal; the opposite is also true.

However, Bias has limitations. For stocks that don’t fluctuate much over the long term, Bias may not be very useful. Also, it has a lagging nature, so it’s not very suitable for judging sell signals; it’s better used as a reference for buying. For large-cap stocks, Bias tends to be more accurate; for small-cap stocks, caution is advised.

Most importantly, don’t rely solely on Bias. It’s best to combine it with other indicators like the stochastic indicator KD or Bollinger Bands (BOLL) for more accurate judgments. Also, remember that parameter selection is critical—too short a period can lead to overreaction, while too long can be too slow. Lastly, stocks with good fundamentals tend to rebound quickly after declines; otherwise, they may take longer. Bias is essentially a tool to observe market psychology; used well, it can indeed help determine buy and sell timing.