Bollinger Band Analysis & Bollinger Trade Signals

Developed by John Bollinger

Bollinger Bands are formed by 3 lines. The middle line is a Moving Average - 20 period Simple MA Moving Average.

The bands are then drawn at a distance away from the moving average These are the bands which form the lower and upper lines.

The distance where the bands are drawn is decided by another indicator referred to as the standard deviations. Standard deviation is a gauge and measure of volatility in the market or that of gold.

Since the price volatility keeps on changing, the standard deviations will keep fluctuating, & since Bollinger bands are drawn using the standard deviations calculation the distance of the bands will keep on self adjusting themselves to the price volatility conditions.

When markets become more volatile, the bands widen and they contract during less volatile periods.

The 3 Bands are designed & intended to encompass/enclose the majority of the price action. Middle band forms the basis for the trend, typically a 20-periods simple moving average MA.

This band also serves as the base for the upper and lower bands. Upper band's and lower band's distance from the middle band is determined by volatility. The upper bollinger band is drawn at +2 standard deviations above middle band while lower band is plotted at -2 standard deviations below middle band.

Bollinger Bands - Bollinger Bands Free Download

XAU/USD Analysis & How to Generate Trading Signals

Bands provide a relative definition of high & low

Used to identify periods of high & low price volatility

Used to identify periods when prices are at the extreme regions

the Squeeze

The bands tighten as the price volatility reduces, this identifies periods of consolidation. Sharp price break-outs tend to happen after the bands tighten.

Bollinger Bands Technical Analysis - No Nonsense Trading Bollinger Band Indicator

Consolidation Pattern

the Bulge

If gold prices break through the upper or lower band move outside the bands a continuation of current market trend is expected.

Bollinger Bands Bulge - Bollinger Bands Indicator

Double Top & Double Bottom

Bottoms and tops made outside the bands followed by bottoms & tops made inside the bands call for reversals in the market trend

Bollinger Bands Analysis - Bollinger Bands Analysis - Bollinger Bands Indicator

The Head Fake - XAUUSD Whipsaw

Traders should be on lookout for false break outs known as whipsaws or head fakes.

Price often breaks out in one direction immediately following the Squeeze setup causing a lot traders to think the break-out will continue in that direction, only to quickly reverse & make the true, more significant breakout in the opposite trend market direction.

Traders acting quickly on this initial break-out often get caught up on the wrong side of the price action, while those traders expecting a "false breakout" can quickly close-out their original position and enter a trade position in direction of reversal. It is always good to combine Bollinger bands with other confirmation Indicators.

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