Never miss a great news story! Get instant notifications from Economic Times Allow Not now. Choose your reason below and click on the Report button. This will alert our moderators to take action. Get instant notifications from Economic Times Allow Not now You can switch off notifications anytime using browser settings. Technicals Technical Chart Visualize Screener. NIFTY 50 10, Drag according to your convenience.
But when this trend becomes your enemy, things start to bend. For identifying a change in trend or to find out when the market is oversold or overbought, technical analysts have a secret weapon, it is called 'Bollinger Bands'. To understand Bollinger Bands, traders should understand the math behind it. Bollinger Bands are plotted with two standard deviations from a simple moving average.
Usually that average is The upper and the lower bands are the measure of the standard deviation from the moving average. These price channels are used to measure volatility. When the price touches any one of the bands, it flattens out and the upper and lower bands begin to move closer, which indicates easing of volatility. It is a measure of volatility and the bands adjust according to market conditions, giving traders a brief idea about of the market direction. When the market turns volatile, the lower and upper bands widen, i.
In less volatile periods, the bands contract comes neared to the moving average. It is plotted by 2 SD above day simple moving average and 2 SD below day moving average. How to implement Bollinger Bands? To implement Bollinger Bands, investors should keep a close eye on the contraction and expansion of the upper and lower bands.
Initially, the two Bands expand in opposite direction at the time of price reversal, whether it is upside or downside. The current Nifty setup shows it is trading in the middle of the upper Bollinger Bands line and the day moving average. Expansion or the width of the band shows an increase in volatility, while a contraction in the bands shows drop in volatility.
The index reversed the trend after it closed above the upper band line on May 26 and 27, but since then the Nifty50 is moving in a direction opposite to the band. If you look at the chart closely, the bands are moving upwards but the trend of the index is slightly downside. If the index continues its slide, Nifty50 will find support near its day moving average of 8, Traders should remain cautious as we come face to face with two major global events, US Fed rate-setting meeting and the Brexit vote.
Use other indicators to find winning trades: Bollinger Bands are a fantastic indicator to determine overbought and oversold levels on the charts. But try combining it with other indicators such as RSI, Stochastics or parallel channel lines to find winning trades, say experts. Derivatives analysts also use this indicator to play the Vega or volume spread. He said when price moves near to the lower band and the previous low is outside of the band, and when the next low is lower to the previous low but inside the Bollinger Bands, it is an accurate buy signal or vice-versa in cash of sell side.
When used in combination of the other technical tools, it gives additional confirmation of an impending change in trend. Can Bollinger Bands help in a panic situation? So what should traders do when they come face to face with big market crashes, failing to decide how to take positions? Read more on traders. Cricket-Marsh, Paine repay selectors with key partnership. Chanda Kochhar's daughter Aarti set to marry beau Aditya. Soccer-Serie A top scorers.
Sebi imposes Rs 25 lakh penalty on investment adviser for repeat violations. My Saved Articles Sign in Sign up. Find this comment offensive? This will alert our moderators to take action Name Reason for reporting: Foul language Slanderous Inciting hatred against a certain community Others. Your Reason has been Reported to the admin. Fill in your details: Will be displayed Will not be displayed Will be displayed.More...