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Last Updated : Mar 17, 2019 11:52 AM IST | Source: Moneycontrol.com

Technical Classroom: How to use technical indicators

Bollinger Bands are a type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity.

Moneycontrol Contributor @moneycontrolcom

Chandan Taparia

In the technical classroom, we will be discussing more about Technical Indicators such as the Money Flow Index and Bollinger Bands.

The Money Flow Index (MFI) is a technical oscillator that uses price and volume for identifying overbought or oversold conditions in an asset.

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It can also be used to spot divergences which warn of a trend change in price, while Bollinger Bands are a type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity.

a) Money Flow Index (MFI):

The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure. MFI is also known as volume-weighted RSI. MFI starts with the typical price for each period. Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling pressure).

A ratio of positive and negative money flow is then plugged into an RSI formula to create an oscillator that moves between zero and one hundred. As a momentum oscillator tied to volume, MFI is best suited to identify reversals and price extremes with a variety of signals.

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b) Bollinger Bands:

Bollinger Bands are volatility bands placed above and below a moving average. Volatility is based on the standard deviation, which changes as volatility increases and decreases. The bands automatically widen when volatility increases and contract when volatility decreases.

Their dynamic nature allows them to be used on different securities with the standard settings. For signals, Bollinger Bands can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend.

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(The author is Associate Vice President | Analyst-Derivatives at Motilal Oswal)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Mar 17, 2019 11:52 am
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