Quantifying the Volatility of Stock Price Changes in the Indian Market Using the Moving Average Envelope and Bollinger Bands

Authors

  • Arkaprava Chakrabarty Department of Business Administration, Institute of Engineering & Management, GN- 34/2, Ashram Building, Sector-V, Bidhannagar, Kolkata-700091, West Bengal, India.
  • Ayan Majumdar Department of Management and Business Administration, Aliah University, Action Area II-A/27, Newtown, Kolkata-700160, West Bengal, India.
  • Moumita Chatterjee Department of Mathematics and Statistics, Aliah University, Action Area II-A/27, Newtown, Kolkata-700160, West Bengal, India

DOI:

https://doi.org/10.22452/IJIE.vol16no2.2

Keywords:

Technical analysis, Volatility studies, Moving average envelope, Bollinger Bands, Intraday trading, Sharpe ratio

Abstract

A trading system in any stock market is built on long-term, intermediate-term,
and short-term indicators. Some ‘lagging’ indicators, such as the simple and exponential
moving averages, can be used to determine the direction of a medium- to long-term
trend. Some ‘leading’ oscillators, on the other hand, can tell a trader whether or not a
trend is losing momentum. This paper examines how well moving average envelopes and
Bollinger Bands measure stock price volatility, and how useful these technical analysis
tools are for short-term horizons. The paper then attempts to evaluate the speed of these
indicators in order to explain the sensitivity and response time of data collected from a
secondary survey in the Indian capital market. The article concludes that moving average
envelopes outperform Bollinger Bands in real trading settings, since technical trading
rules are generally designed for short-term investments. Bollinger Bands can detect
abrupt price fluctuations, however they are not more effective than moving average
envelopes to measure profitability.

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Published

2024-04-01

Issue

Volume 16, Issue 2 (2024)

Section

Articles

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