Trading with

Bollinger Bands, Donchian Channels

&
Combination of Both

By Harish Kumar
 About Me
• I am a Chartered Accountant by qualification.
• My trades are short term based on the behavior of Price.
• My main aim is to protect capital while trading and trying to keep
the losses as small as possible by focusing on risk management.
• My analysis is mix, based on charts with the analysis of demand &
supply backed with various Price Action indicators.
• I Like to keep myself abreast of overall sentiments and trend of
markets & various sectors.
• I firmly believe in the quote “Rome was not built in a day”.
• “When one teaches, two learn.” - Robert Heinlein
• Aiming to start an educational website soon for newbies in stock
markets.
• As of now, you can follow me on twitter at @harrie007

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 Agenda of today’s webinar
• Demand and Supply zones
• Price Action at Demand Supply zones
• Importance of 20 SMA/EMA
• What is Bollinger Band?
• What is Donchian Channel?
• How to trade using each of them individually and in combination?
• Becoming a better trader
• Queries & Doubts

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 Disclaimer
• The material used in the Presentation may or may not be property of the
presenter and/or organiser of the webinar. (Charts courtesy: Trading View &
Zerodha)
• The charts and examples in the presentation are just for reference and not to
be construed as advice or endorsements.
• A trading system can-not be rigid, since TA is not hardcore science but an
art. You can tweak your system a bit as per the demand of set-up/context.
• All systems have their own limitations and may not work in all environments.
• Without risk management, we are bound to loose capital, whatever may be
the accuracy or strength of the system.
• I know what I read and observe.

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Demand and Supply

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 Demand & Supply…
• Understanding Demand (DD) and Supply (SS) is first and foremost step for a
technical / Price Action trader.
• In other words, Demand Supply is the main product while all other things
(Patterns, Indicators, oscillators etc.) are like primary packaging of a product,
which is necessary to protect the main product from perishing or outside
exposure.
• Demand & Supply analysis is the study of how buyers and sellers interact to
determine the transaction price and quantities.
• Professional traders use the DD/SS to find the levels/location of their
prospective trades.
• Demand : Refers to how much quantity of a product is desired by the
buyers at a certain price.
• Supply: represents how much the market can offer for the desired product.
• Equilibrium: The supply demand work together, Demand increases while
supply decreases with fall in price and vice-versa. Therefore, Price is a
reflection of equilibrium of demand and supply.
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 Demand and Supply
• Demand Supply Discovery of Price

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Demand and Supply

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 …Demand & Supply
• Disequilibrium: Reasons of disequilibrium:
• Excess Demand/Supply: When the price is set below the equilibrium price,
many participants would run to buy the goods, while the sellers would
not be interested to sell the goods at such low price. Hence, will
create the situation of Disequilibrium.
• Due to lesser supply, the consumers who want the goods will ultimately
start paying better (high) prices, which will attract more sellers to
increase the supply. Hence, this will continue until the equilibrium is
reached. Similarly, in case of excess supply, Price comes down,
leading to increase in demand and then price.
• This is a cycle, which goes on.
• Disequilibrium Equilibrium Disequilibrium Equilibrium
• The Stock Markets works on this philosophy.
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 Demand & Supply Zones (Value Zone)
• Demand Supply Zones are those areas where the participants are waiting to
absorb the excess supply/demand.
• These area are normally created by large institutions and hence attractive to
participants. In near future, the price is expected to react in the VZ.
• These are also known as Support & Resistances.
• At supports, buyers emerge leading to reversal and price rise, similarly at
resistance zone, sellers emerge leading to price fall
• More steeper the reversal, higher is the imbalance and stronger is the
resistance / support
• Resistance zone will act as resistance in future also, as all the sellers may not
be exhausted and will come again to sell if they get same price again.
Hence, price has high probability to fall from that zone again.
• Similarly, support zone will act as support in future also, as all the buyers may
not be exhausted and will come again to buy if they get same price. Hence,
price has high probability to rise from that zone again

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Demand & Supply Zones (Value Zone)
• Support/resistance is not a point or a
stock price.
• Since the Support/resistance are not
rigid, they are flexible just like a boxing
ring fence.
• Bulls & bears can come, fight, lean
through S/R but may stand. S/R is not
a wall of glass, that once broken, it will
shatter.
• Similarly, markets can have false
breakouts below support or above
resistance and can return to their
range after a brief violation.
• That’s the reason, we should take
Support/resistance in terms of
zone/area.
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Demand and Supply – HDFC Bank (W)

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Demand and Supply – HUL (W)

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 Demand & Supply Zones (Value Zone)
• Identifying the Value Zone (i.e. high RR trading locations)

• Value zone can be termed as a significant area where some

important event has taken place in past in relation to price action. E.g.
a top, a bottom, an earlier horizonal/dynamic support or resistance
etc.
• This zone is to get ready to observe the Price Action (PA) closely.
• Look for the phase of Price Action in the zone (i.e. Accumulation, Mark
up, Distribution or Liquidation)
• Look for candlesticks in multiple timeframes
• Enter the trade at the right location by observing price in shorter TF.
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Identifying the Value Zone – Nifty (D)

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 Trading in VZ – Nifty (D)

Chart Tweeted on 8th

May 19

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 Trading in VZ – Nifty (D)

Chart Tweeted on 8th

May 19

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Trading in VZ – Maruti (D)

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IMPORTANCE OF 20 SMA

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 Importance of 20 SMA
• A moving average (MA) is a PA trend indicator that dynamically
calculates the mean average of prices over a defined number of past
periods.
• A 20 SMA is an average of prices over a 20 periods .
• Period may be a day, week, month, Hour, Minutes etc.
• It helps to smoothen the price action by filtering out the “noise” from
random price fluctuations
• It gives a clearer indication on price trends in short term. (For a mid
term, 50 SMA may be used & for Long term, 200 SMA)
• Yes, you can use 20 EMA/ 21 EMA also, which is calculated by giving
more weight to the recent candles (i.e. Exponentially)
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 Importance of 20 SMA
• A 20 SMA is important Moving Average as it is used by most of traders
in all over the world. So it’s a self –Fulfilling Prophecy.
• It helps to identify the short term trend and helps us to go with the
trend.
• Stocks can-not remain too far from the 20 SMA for a long period of
time.
• It acts as a “Magnet Line”
• If price goes far away from 20 SMA, it will come back to it just like a
rubber band after stretching it. i.e. Rubber Band theory.
• Many traders just use 20 SMA along with price for making a living for
themselves.
• Rising 20 SMA: Acts as support; Falling 20 SMA: Acts as resistance; Stay
away from flatter 20 SMA: Sideways movement.
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Importance of 20 SMA-HUL (D)

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Importance of 20 SMA- UPL (D)

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BOLLINGER BANDS

Mr John Bollinger, The foremost authority on Bollinger Bands

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 Bollinger Bands…
• Bollinger Bands® is a technical analysis tool developed by John Bollinger in
1980s.
• To understand Bollinger Bands, we need to first understand Standard
Deviation.

Standard Deviation (SD)

• A standard deviation is a measure of how far away a stock price (Closing) is
from its average or typical price.
• Standard Deviation (SD) is calculated on the mean value (i.e. 20 SMA)
• So, 1 SD is a little bit higher or lower than the average (Mean)- Frequent
• 2 SD is a lot higher/lower than the mean- Occasional
• 3 SD is whole lot higher/lower than the mean- Rare Email : harrie007@[Link] 25
 Bollinger Bands…
STANDARD DEVIATION (SD)
• According to Normal Distribution theory, 1SD covers the 68.26%
deviations from the Mean.
• Further, a 2 SD covers around 95.44% of the deviations. (Bollinger takes
~ 90% )
• Higher the deviation, the more
it tends to get attracted towards mean.
• It provides a trading opportunity.

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 Bollinger Bands
• There are three lines that compose Bollinger Bands: A simple moving
average (middle band) and an upper and lower band.
• 2 SD is calculated and added (for upper band) and deducted (for
lower band) from the mean value (20 SMA)
• The upper and lower bands are typically 2 standard deviations +/-
from a 20-day simple moving average, but can be modified.
• It identifies the volatility levels of stocks.
• BB may be applied in any market and in any Time Frame
• Bollinger Bands shows whether prices are high or low on relative basis.
• BB gets narrowed after a quiet period in the market. It width expands
rapidly as the market becomes more volatile.
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 Bollinger Bands
• During choppy markets, a price move originates from one band and
reach to the another band.
• When the prices move above the upper band, it’s a sign of great
strength, and when the price moves below the lower band, it’s a sign
of great weakness. (Specially when the bands start to expand after a
reasonable duration of narrow bands)
• In such a scenario, it can be assumed that the trend is in place.
• When we set a SD of 2, it covers almost 95% moves of price
(practically, 85%-90%)
• BB can be used in conjunction of other Indicators, Mr. Bollinger
normally uses it with RSI.

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Bollinger Bands

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BB- Price during Choppy & trending markets-
ACC (D)

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BB- Price during Choppy & trending markets-
Bank Nifty (D)

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BB- Price during Choppy & trending markets-
HDFC Bank (D)

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BB Gold Daily

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Bollinger Band Relative High low Concept
• Mantra of success in Stock Market (in fact anywhere)-
• Buy Low and Sell High
• Theory of relativity- Albert Einstein
• Says (crudely)- One thing is black, since you compare it with white,
something is big as compared to something smaller.
• So, we can buy low and sell high in a relative term (non absolute terms
which is difficult)
• BB helps us to find the what is low (where one can think to buy) and
what is high (where one can think to sell)
• Definition of High will be set to UBB and low to LBB

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Bollinger Band Relative High low Concept

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Bollinger Band Relative High low Concept

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Bollinger Band Relative High low Concept

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 Bollinger Band - Squeeze
• INTRODUCTION

• Old Saw – There is a lull before every storm.

• BB are driven by volatility and squeeze is the reflection of that volatility
• When the volatility falls to the historically lower levels, we say the
Squeeze is on. (Bollinger prefers the period of 6 months on daily charts)
• During squeeze, consolidation is seen
• Price goes side ways
• 20 SMA goes flatter
• Normally, volume bars also go small.
• This is when the Operators start creating their positions (We will Follow
their shadows)
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 Bollinger Band - Squeeze
TRADING SQUEEZE

• Note: If if you find it a bit confusing to decide whether the band is

properly squeezed or not, you can use Bandwidth.
• Take a position as soon as the market gets out of the range
• i.e. take a position (on close on same day or next day) as soon as the
body of one of the candlesticks touches either the Bollinger upper or
lower band on closing basis. (Name it as signal candle)
• look at the Indicator also + PA
• SL = Below the Signal Candle + PA
• Tgt = Let the mkt decide
• Option = Buy the ATM CE/PE (as the case may be)
• Due to less volatility, Premiums will be less.
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 BACK
Bandwidth
• When volatility falls to historically low levels, it reflects
that squeeze is on and may be in near future a spurt
in volatility may be expected.
• Historically volatility = 6 Months in daily charts or 100-
120 candles
• Computation: Upper BB – Lower BB1
Middle BB

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Bollinger Bands- Squeeze (Nifty- Daily)

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Bollinger Bands- Squeeze (Reliance Infra D)

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Bollinger Bands- Squeeze (Reliance Infra)

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Bollinger Bands- Squeeze (Britannia D)

and past data

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Bollinger Bands- Squeeze (RIL- M)

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 Bollinger Band Expansion
• INTRODUCTION

• After a squeeze, volatility increases

• Upper Bollinger Band (UBB) starts moving up and Lower Bollinger Band
(LBB) turns down
• It means a new trend started
• Further, after a blasting move post squeeze breakout, when the
expansion reverses i.e. the UBB starts turning down and LBB turns up:
• It means either the trend reversal is round the corner or consolidation
about to begin

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 Bollinger Band Expansion
• TRADING EXPANSION

• Keep riding the Underlying or Option bought till the Expansion

continues.
• Further, after a blasting move post squeeze breakout, when the
expansion reverses i.e. the UBB starts turning down and LBB turns up:
• It means either the trend reversal is round the corner or consolidation
about to begin
• In such scenario, Book profits on the Stock/Long options
• Create fresh positions, in Short OTM Options with suitable Strike
(preferably next Strike, or next to next strike depending upon the
period left in expiry)

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Bollinger Band Expansion Process- Bank Nifty

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Bollinger Band Expansion Process -RIL

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 Bollinger Band Double Bottoms/Tops
• Bollinger Bands assists well in pattern recognition
• By defining , high-low, calm - volatile, trending – Non trending
• Double Bottom (W) and Double tops (M)are examples of the
patterns that indicates the existing trend is coming to end and a
new trend shall start soon
• An ideal example of W involves an initial decline followed by a
relief rally.
• Then a second decline followed in turn by the initiation of new
uptrend
• Not much important that the second low makes a new low or not

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Bollinger Band Double Bottoms- Nifty D

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Bollinger Band Double Bottoms- Maruti D

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Bollinger Band Double Top- Maruti D

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Bollinger Band Double Top- Crude W

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Bollinger Band Application in Sideways Market
• Sideways market : When there in neither a situation of
Squeeze nor an expansion.
• During a sideways market (or in a weaker trend), The bands
may get flatter but may not be squeezed enough
• Generally this situation comes after an expanded move is
over (but not necessarily, Price usually acts as a pendulum
between the bands when not in up/down trend)
• In such cases, it is observed that Price behaves like a “Rubber
Band”
• Whenever the price gets too far away from the middle band,
it tends to mean revert back towards it.
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Bollinger Band Application in Sideways Market

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Bollinger Band Application in Sideways Market

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Bollinger Band Application in Sideways Market
• You can trade using Bollinger Bands in such markets.
• But such trades can be refined with using the Donchian
Channels.
• So step by step trading in such cases will be discussed at
later part of webinar.

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DONCHIAN CHANNELS

Mr. Richard Donchian, The Creator of Donchian Channels

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 Donchian Channel
INTRODUCTION
• Developed by Mr. Richard Donchian (1905-1993)
• It highlights trends, ranges and new “x” number of day
breakouts/breakdowns.
• It exhibits the Higher High and Lower Low of the prior 20
days (days can be changed)
• Upper Band = Higher High of past 20 days
• Lower Band = Lower Low of past 20 days
• Middle Line = Moving average which calculates the
average of past 20 days Low/High
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Donchian Channel

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 Donchian Channel
TRADING DONCHIAN CHANNELS (WITH ADX AND 100 SMA)

• 100 SMA (Trend)

• 20 Period Donchian Channel (Trigger)
• ADX 20 (Momentum)
1. Check if ADX > 20, if NO→ Wait
2. If Yes, Check CMP > 100 SMA, If Yes→ Look for Long, Else
for short
3. Look for BO as per Donchian Channel (Suitable BO – i.e.
near to the event when ADX went above 20)

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Donchian Channel- Nifty D

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Donchian Channel- RIL D

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 Donchian Channel
TRADING DONCHIAN CHANNELS (WITH RSI AND 100 SMA)

Note:
• 100 SMA (Trend)
• 20 Period Donchian Channel (Trigger)
• RSI (14) (Momentum)
1. Check if RSI > 55, if NO→ Wait
2. If Yes, Check CMP > 100 SMA, If Yes→ Look for Long, Else
for short
3. Look for BO as per Donchian Channel
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Donchian Channel- TITAN D

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Donchian Channel- MARUTI D

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 Donchian Channel
IMPORTANT THINGS

1. Consider only those Breakouts which happens within few

trading days when ADX/RSI has given green signal to
trade.
2. Donchian Channel works well in trending markets
3. Not a Holy Grail, You may face regular SLs, but few trades
will be huge in your favour

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BOLLINGER BANDS
+
DONCHIAN CHANNEL

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Bollinger Bands + Donchian Channels
• People usually compare Bollinger Bands and
Donchian Channels and try to find out which one is
better.
• Should we really need to compare them?
• Both of them have their own qualities and usage.
• Bollinger Bands measures Volatility and Donchian
Channels gave the Break out trades.
• So we’ll try to use both of them in combination.
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Bollinger Bands + Donchian Channels

Situations/Strategy

1. Bollinger Band Squeeze in Donchian Channel

2. BB+DC application in sideways market
3. Profit from Trapped traders (Headfakes/Breakout
Failures)

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 BB + DC : BB Squeeze in DC
• Bollinger Band tells whether Volatility is rising or falling
• Donchian Channel serves as a Breakout indicator
• When Bollinger Bands contracts within the Donchian
Channel, it signals a prospective spurt in Volatility.
• It will not confirm which way the Breakout will happen.
But whichever side, it happens, magnitude will be high.
• It is basically extension to our BB Squeeze BO strategy. It
gives clear picture as to when we should take the
trade.
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 BB + DC : BB Squeeze in DC
• Bollinger Bands tell whether Volatility is rising or falling
• Donchian Channel serves as a Breakout indicator
• When Bollinger Bands contracts within the Donchian
Channel, it signals a prospective spurt in Volatility
• It will not confirm the direction of the Breakout. But
whichever side, it happens, magnitude will be high.

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BB + DC : BB Squeeze in DC Bank Nifty D

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BB + DC : BB Squeeze in GoldAugFu- Hourly

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BB + DC : BB Squeeze in DC Divis-Failure

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 BB + DC : Sideways Market
• Trading is comparatively simple (not easy) when
there is an uptrend or downtrend. You have to just
move with the trend.
• However, statistically Markets are in trend only in 30-
35% of times. I.e. around 65- 70% of time, it is
sideways
• Bollinger Band is a tool which can be effectively
used in sideways market as well.

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 BB + DC : Sideways Market (Long)
1. Price is falling steeply.
2. Previous day’s candle’s low is below the Lower BB
and must touch the Donchian Channel. Name it
“Signal Candle”, it will remain a “Signal Candle”
until its low is breached.
3. Initiate long positions on breach of High of the signal
candle.
4. Stop Loss = Low of Signal Candle (–) 20/50 Points(Nifty/Bank
Nifty)/ 0.25%(stocks)as buffer
5. Target = First Target is 20 SMA, 2nd Target is the Upper BB
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BB + DC : Sideways Market (Nifty -Long)

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 BB + DC : Sideways Market (Long)
Important :-
1. Position is to be made only if Reward to Risk is atleast 1.5 : 1. Else
Avoid the trade.
2. Trail SL after 2 candles to below the low of last to last candle.
3. Purpose is to safeguard the capital. Let market decide the profits.
4. Avoid trading on High volatile days like news/election/policy
days.
5. Hold the trade for a maximum period of 7-8 days. If short options
are traded, can be held till expiry. (Inverted Flag- danger)

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 BB + DC : Sideways Market (Short)
1. Price is rising steeply.
2. Previous day’s candle’s high is above the Upper BB
and must touch the Donchian Channel. Name it
“Signal Candle”, it will remain a “Signal Candle”
until its high is breached.
3. Initiate short positions on breach of low of the signal
candle.
4. Stop Loss = High of Signal Candle + 20/50 Points(Nifty/Bank
Nifty)/ 0.25%(stocks)
5. Target = First Target is 20 SMA, 2nd Target is the Lower BB
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 BB + DC : Sideways Market (Short)
Important :-
1. Position is to be made only if Reward to Risk is atleast 1.5 : 1.
Else Avoid the trade.
2. Trail SL after 2 candles to above the high of last to last
candle.
3. Purpose is to safeguard the capital. Let market decide the
profits.
4. Avoid trading on news/election/policy days.
5. Hold the trade for a maximum period of 7-8 days. If short
options are traded, can be held till expiry. (Flag- Danger )
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BB + DC : Sideways Market (Short)

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BB + DC : Sideways Market (RIL 15M)

Works in all Time frames

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 BB + DC : Sideways Market (NF 1M)

Works in all Time frames

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BB + DC : Profiting from Trapped Traders
• Maximum traders wait for Breakouts to join the rally.
• In this attempt, they sometimes get trapped.
• And since trading is a zero sum game, if they are
loosing, someone is gaining.
• Big traders use their positions in their favor and take
advantage of order flow created by Trapped traders
• Operators let the price look like a Breakout which is
actually a fake out and create reverse positions
• We have to stay under their shadow and follow them

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BB + DC : Profiting from Trapped Traders
• Break out Failure: By definition, it is situation wherein the
price temporarily moves above an important resistance
or moves below an important support and retreats
back to other side.
• In this case, many retail traders initiate their positions
and get stuck.
• BB+DC may be deployed to increase your odds to be a
bit closer to the biggies and to profit from such
situations.
• Its an extension to the our earlier discussed method i.e.
BB+DC: Sideways market with a difference that odds
are better and RR is even better.

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BB + DC : Profiting from Trapped Traders
• What we have to do?
• We have to find out situations, where:-
1. For taking Long position (EOD Analysis of daily charts)
A. Low of the daily candle must be outside the LBB
B. It should touch the Donchian Channel
C. Donchian channel should be flat for atleast 3-4 days.
D. Now DC should have tilted to fresh low today. Name it
“ T-Candle”. i.e. Trap-Candle. The Trap candle will
remain so until its low is broken.

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BB + DC : Profiting from Trapped Traders
C. Volume should be atleast 1.5 times of previous 20
days average (Additional condition)
D. Take position next day, once the price crosses 50%
of the T- Candle while going up(Ensure the 50% is
above the previous value of Donchian Channel
(before tilting down)
E. SL = Low of T-Candle – 20/50 Points (NF/BNF) /0.25%
in case of stock
F. Tgt = T1 will be 20 SMA, T2 will be UBB
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BB + DC : Profiting from Trapped Traders
2. For taking Short position (EOD Analysis of daily
charts)
A. High of the daily candle must be outside the UBB or
at edge of UBB
B. It should touch the Donchian Channel
C. Donchian channel should be flat for atleast 3-4
days.
D. Now DC should have tilted to fresh high today.
Name it “ T-Candle”. i.e. Trap-Candle. The Trap
candle will remain so until its high is broken.
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BB + DC : Profiting from Trapped Traders
C. Volume should be atleast 1.5 times of previous 20
days average (Additional condition)
D. Take position next day, once the price crosses 50%
of the T- Candle while coming down(Ensure the 50% is
below the previous value of Donchian Channel
(before tilting up)
E. SL = High of T-Candle + 20/50 Points (NF/BNF) /0.25%
in case of stock
F. Tgt = T1 will be 20 SMA, T2 will be LBB
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BB + DC : T Candle – ACC D

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BB + DC : T Candle – Grasim D

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BECOMING A BETTER
TRADER
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 Becoming a better trader
1. Trade with Positive and clear mindset
2. Use money/capital which if you loose will not hamper your day to day
life.
3. Risk not more than 1%-2% of your entire capital in a single trade
(capital, SL, calculate the amount of max risk)
4. Don’t use 100% capital to trade at any given point of time. Keap
atleast 40%-60% of balance in reserve to deploy the same in any
emergent situation.
5. Keep taking profits, when you have it.
6. Being right will not make you successful, focus should be on making
money and loosing small money.
7. Do proper HomeWorks before you enter into a trade.
8. Keeping Trading journal is a must.
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Q&A
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You can reach me anytime at:

Twitter: @harrie007
Email: harrie007@[Link]

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97
Thank You
for participation.
(Please never forget: Learning is a lifetime pursuit)

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 Links
• To access the Log sheet created at Google spreadsheet, Follow:
• [Link]
Q_SnEouswmZa8ba-7Rs3XGc/edit#gid=0
• (Please copy the file and save in your google drive and do not edit
this file)

• To access the Chartink screener, follow this link:

• [Link]
• (The procedure of linking the screener to your Chartink is on next slide)

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Process of adding the Chartink Scan to
your account
• Steps:
• Click on the link, it will open the scanner.
• You can save it in your account by using Copy button. And it will be
added to your Chartink account. You can use it anytime thereafter..

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