How Bollinger Bands CFD Technical Indicator Works

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

Bollinger Bands CFD 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 Deviation

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

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

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

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