HOW TO USE BOLLINGER BAND'S

Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980's. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time. The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions. Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes.

Interpretation:
The standard interpretation is that Bollinger Bands do not give absolute buy and sell signals, but instead indicate whether the price is relatively high or low, allowing for more informed confirmation with other technical indicators. Here is the structure of the Bollinger bands 1) The upper band - which is showing you the simple moving average + 2 x standard deviation 2) The lower band - which is showing you the simple moving average - 2 x standard deviation 3) The Simple Moving Average (SMA)

Mr. Bollinger also contends that: Sharp moves tend to occur after the bands tighten to the average, when a stock is less volatile. The greater the period of less volatility, the higher the propensity for a price breakout. When the price hits the upper or lower bands, it is suggested to confirm with other indicators whether that price movement shows strength or weakness, respectively, which could indicate a continuation. If indicators do not confirm this movement, it can suggest a reversal. Tops or bottoms made outside the bands, followed by the same inside the bands, indicate a trend reversal. A move originating at one band tends to go to the other band.

Whenever the market has low volatility, the bands will be narrow and whenever the market has high volatility, the bands will be wide.

Where to see:
1. Click on the link below and try various combinations using various indicators. 2. Please select Period as 5 as a standard & Deviation as 2 as a standard. http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp