- Price band as the name suggests is a range of prices in which a stock is permitted to trade during the day by exchange. The upper price range is called as upper price band or loosely can be called as cap and lower price range is called as lower price band or floor price.
The basic idea of exchange to create price bands is to have a check on mass buying or selling of scrips and importantly to stop panic selling as history suggests people behave irrationally during certain points of time.
Go through the below link
http://www.nseindia.com/products/content/equities/equities/price_bands.htm
Exchange has its own criteria for placing a scrip in particular price band.
- There is no particular way or strategy to trade stocks based on particular price band.But generally stocks which are in 2% or 5% price bands are less liquid and more volatile and should be avoided for daily trading purposes and instead should be considered for investments. More than technical analysis fundamental studies should be considered for analyzing these stocks as they are mostly driven by Idiosyncratic factors than macro or general news.
Stock which are in 10% or 20% price bands are more liquid and less volatile comparatively to above stocks and stocks which don’t have price bands are generally more liquid and less volatile than any and can be approached with any analysis.