How Bollinger Bands Commodities Technical Indicator Works
Bollinger Bands indicator calculations uses standard deviations to draw the bands, the default value used is 2.
Bollinger Bands Commodity Trading Calculation
middle Bollinger band technical indicator line is a simple moving average
The upper Bollinger band line is: Middle line + Standard Deviation
The lower Bollinger band line is: Middle line - Standard Deviations
Bollinger bands commodity indicator considers the best default moving average to calculate the Bollinger bands to be 20 periods moving average and the bands are then overlaid on the commodity chart price action.
Standard Deviation is a statistics concept. It originates from the notion of normal distribution. One standard deviation away from the mean either plus or minus, will enclose 67.5 % of all commodities trading price action movement. Two standard deviations away from the mean either plus or minus, will enclose 95 % of all commodities trading price action movement.
This is why the Bollinger Bands indicator uses the standard deviation of 2 which will enclose 95 % of all commodities trading price action. Only 5 % of commodity chart price action will be outside the 3 commodity bollinger bands, this is why commodity traders open or close commodities trades when commodities trading price hits one of the outer Bollinger Bands.
The Bollinger Bands indicator main function is to measure commodities trading price action volatility. What the Bollinger bands upper and lower limits try to do is to confine commodities trading price action of up to 95 percent of the possible closing commodities prices.
Bollinger Bands indicator compares the current closing commodities trading price with the moving average of the closing commodities trading price. The difference between these two commodities trading prices is the volatility of the current commodities trading price compared to the moving average. The commodities trading price volatility will increase or decrease the standard deviation of the bollinger bands commodities technical indicator.
