Bollinger Bands

Bollinger Bands, developed by John Bollinger, are a volatility-based technical indicator consisting of three lines: a 20-period Simple Moving Average (SMA) in the middle, an upper band at SMA + 2 standard deviations, and a lower band at SMA - 2 standard deviations. The bands automatically widen during volatile periods and contract during calm periods.

The primary use of Bollinger Bands is identifying overbought and oversold conditions. When a stock's price touches or exceeds the upper band, it may be Overbought — for example, if Infosys at Rs 1,600 touches its upper Bollinger Band while the middle band is at Rs 1,520, it suggests the stock is stretched and may revert. Conversely, touching the lower band suggests an Oversold condition.

One of the most powerful Bollinger Band signals is the "squeeze." When the bands contract tightly (low volatility), it signals that a significant price move is imminent — though not the direction. Traders watch for the squeeze on Indian stocks and then trade the Breakout direction. For instance, if HDFC Bank's Bollinger Bands tighten after weeks of sideways trading and the price then breaks above the upper band on high volume, it confirms a bullish breakout.

In the Indian market, Bollinger Bands are widely used on daily and 15-minute charts. Day traders on the NSE use them on 5-minute and 15-minute charts for intraday mean-reversion trades — buying near the lower band and selling near the upper band during range-bound days. For positional trades, the daily Bollinger Band squeeze on Nifty 50 stocks is a popular setup.

Common modifications for Indian markets include using the 20-period EMA instead of SMA (for faster response), adjusting to 1.5 standard deviations for intraday charts, and combining Bollinger Bands with RSI — a touch of the lower band combined with RSI below 30 gives a stronger buy signal than either indicator alone. The "Bollinger Band walk" — where price rides along one band during a strong trend — helps identify trending vs mean-reverting markets.