# Price band – What is it, definition and concept

A price band is used in technical analysis to identify target buy or sell prices. In this way, by establishing certain bands of maximum and minimum limits to the listing price, investment decisions can be made.

In a simple way, it indicates the recommended maximum or minimum prices to buy or sell. For example, we want the price of certain shares to move between five (minimum) and ten (maximum), if it approaches five we will buy and if it is close to ten we will sell.

With this technique, we seek to know the price values ​​between which our investment must move. In this way, buy and sell orders can be established when prices approach them and thus maximize profit.

## Bollinger bands and volatility channels

Bollinger bands and volatility channels are part of technical analysis and have similar principles to the price band, but also some differences. Therefore, it is important to know what they are.

In Bollinger bands the key indicators are the moving average and the standard deviation of it. Thus, it establishes three lines, that of the average itself, a maximum and a minimum, unlike the price line that only takes into account the maximum and minimum price.

Volatility Channels are actually a variant of Bollinger Bands. Its usefulness is, above all, for intraday analysis. In both cases we focus on the concept of volatility.

## Procedure for establishing a price band

Let’s see a simple procedure to perform this type of analysis.

• It never hurts to start with a previous fundamental analysis. In this way, by studying the balance sheets or income statements of the target companies, maximum and minimum prices can be set.
• Second, the data table and its evolution over time are created. For example, the evolution of the last days (in trading) or years (in long-term investments).
• With this table the band graph is raised. A spreadsheet can help us to do it. The truth is that various platforms on the Internet do this work for us. We will see it in more detail in the following example.
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## Price band example

This example can be applied in the short term, for example, trading, or in the long term. Let’s imagine that we have the data of a company in which we are going to invest. We want to know the trend of your stock prices and, above all, when to buy or sell.

For the sake of simplicity we consider that the fundamental analysis has provided us with minimum and maximum price data. We also know the prices of the last fifteen periods. Let’s see how the table and graph would look.

We can see that the price band usually moves between the recommended limits. In period 3 and 7 the price reaches the minimum value and in period 13 it reaches the maximum. When prices approach these extreme positions is when we consider buying or selling.