How Bollinger Bands XAUUSD Indicator Works

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

Bollinger Bands XAUUSD Trading Calculation

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

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

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

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