Recently, while studying technical indicators, I found that many people don't really understand the Bias (BIAS) tool, but it is actually a good helper for judging buy and sell points.

Simply put, Bias is used to see how much the stock price deviates from the moving average line. When the stock price rises excessively, far beyond the average line, it usually indicates a potential pullback; conversely, if it drops too sharply, it is very likely to rebound. This logic is similar to agricultural product prices—when prices rise to extremes, they tend to fall; when they hit the bottom, they tend to rise. Investors' psychology is quite straightforward.

The calculation method is actually simple: subtract the N-day moving average from the closing price of the day, then divide by the moving average, and the resulting percentage is the Bias. But it’s important to note that the moving average itself has a lag, so Bias also lags, which is its inherent limitation.

Regarding Bias settings, many people initially get confused about how to start. The first step is to choose an appropriate moving average period. Short-term usually uses 5 or 10 days, mid-term uses 20 or 60 days, and long-term uses 120 or 240 days. Then, the Bias parameters are generally set at 6, 12, or 24 days; which specific one to use depends on your stock’s activity level and market sentiment. Highly active stocks may be more sensitive to shorter periods and react faster.

As for how to use Bias to find buy and sell points, the key is to set a positive and a negative threshold as signals. For example, a 5-day Bias can be set around 2% or 3%, but this should be adjusted based on historical data and your experience. When Bias exceeds the positive threshold, it’s a sign of overbought, and you might consider selling; when it falls below the negative threshold, it’s oversold, and you might consider buying. But this is not absolute—especially in highly volatile markets, Bias thresholds can be frequently broken, so flexibility is needed.

An advanced approach is to combine Bias from multiple moving averages, such as observing both 5-day and 20-day Bias simultaneously, to get a more comprehensive view of short-term and medium-term trends. Also, observing divergences is very important: if the stock price hits a new high but Bias doesn’t, it could be a top signal; conversely, if the stock hits a new low but Bias doesn’t, it could be a bottom signal.

However, Bias also has its limitations. If a stock is gradually rising or falling over the long term, Bias may not be very effective. Also, because of its lagging nature, it can cause you to miss the best timing for selling; it’s more useful as a reference for buying. Additionally, the effectiveness of Bias varies with market capitalization—large-cap stocks tend to be more stable and accurate, while small-cap stocks are less reliable.

In practical trading, my advice is not to rely solely on mechanical rules based on Bias settings. It’s better to combine it with indicators like KD or Bollinger Bands for more accurate judgment. Also, adjust flexibly based on the company’s fundamentals—good-performing companies tend to rebound quickly when falling because everyone fears missing the buy point; poor-performing companies rebound much more slowly. In summary, Bias is a useful auxiliary tool, but trading should be considered from multiple dimensions.