How Bollinger Bands Gold Indicator Works

Bollinger Bands indicator calculations uses standard deviations to draw the bands, the default value used is 2.

Bollinger Bands XAUUSD Calculation

middle Bollinger band technical indicator line is a simple moving average

The upper Bollinger band line is: Middle line + Standard Deviations

The lower Bollinger band line is: Middle line - Standard Deviation

Bollinger bands gold 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 gold 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 xauusd trading price action movement. Two standard deviations away from the mean either plus or minus, will enclose 95 % of all xauusd trading price action movement.

This is why the Bollinger Bands indicator uses the standard deviation of 2 which will enclose 95 % of all xauusd trading price action. Only 5 % of gold chart price action will be outside the 3 gold trading bollinger bands, this is why gold traders open or close xauusd trades when price hits one of the outer Bollinger Bands.

The Bollinger Bands indicator main function is to measure xauusd trading price action volatility. What the Bollinger bands upper and lower limits try to do is to confine xauusd trading price action of up to 95 percent of the possible closing xauusd prices.

Bollinger Bands indicator compares the current closing xauusd trading price with the moving average of the closing xauusd trading price. The difference between these two xauusd trading prices is the volatility of the current xauusd trading price compared to the moving average. The xauusd trading price volatility will increase or decrease the standard deviation of the bollinger bands xauusd technical technical indicator.