What is the primary use of bands in trading analysis?

The primary use of bands in trading analysis is to indicate overbought or oversold conditions. Bands, such as Bollinger Bands, are statistical tools that help traders visualize price volatility and potential trend reversals. When the price moves outside of these bands, it can suggest that a security is overbought or oversold, potentially signaling a correction or reversal in trend.

For instance, if the price approaches the upper band, it may indicate that the asset is overbought, while a price near the lower band might suggest it is oversold. Traders utilize this information to make informed decisions about when to enter or exit positions. Understanding this aspect is crucial in assessing market sentiment and potential price movements based on volatility. In contrast, using bands to determine the beginning of a trend, confirm daily volatility, or generate buy/sell signals involves secondary interpretations of the data provided by the bands rather than their primary function.