What is a trading band?
It's a range of prices for a stock, commodity or currency. Lines are plotted on a price chart on either side of a moving average to define a security’s trading range. These bands indicate whether prices are relatively high or low, and alert traders to whether the time is right to buy or sell.
Where have you heard about trading bands?
Trading bands are commonly seen in the currency market. A country's central bank will set a band of how much it will allow its currency to change against another before it takes measures to keep it within the band. The Chinese yuan is an example of a currency that moves within a currency band.
What you need to know about trading bands.
Bollinger Bands and Keltner Channels are both types of trading band.
Bollinger Bands refer to volatility bands that are placed above and below a moving average. The upper and lower bands widen when the markets are volatile and contract during less volatile periods. They’re still a hugely popular technique in technical analysis today.
Keltner Channels also adapt to changes in volatility, signalling a potential trend reversal.