Valuation Bands are supposed to be used for taking INVESTMENT decisions. Hence best time frames to use these bands are Daily & Weekly.
These bands are an attempt to represent a stock's valuation in terms of its pricing. Obviously, there is no relation between actual valuation determined through Fundamental Analysis.
The bands have been created by modifying Bollinger band settings. There are 3 bands Over-Valuation Band, Average Valuation Band & Under Valuation Band.
OVER VALUATION BAND
- Do not create fresh positions near or above this band - If the price is trading above the band; hold onto your investment unless there is closing below this band. - If the price closes below this band; wait for a reversal sign to create a fresh entry.
AVERAGE VALUATION BAND
- Create a new or keep adding more to your existing positions as the price approaches this band. - It is recommended to exit if this band is broken & wait for fresh entry.
UNDER VALUATION BAND
- Look for a fresh investment opportunity after there is closing above this band - Do not create fresh positions unless there are clear reversal signs.
You can use this indicator along with REKAB & RECAT to confirm entry points.