How Bollinger Bands Gold Trading Indicator Works
Bollinger Bands gold trading indicator calculations uses standard deviation to draw the bands, the default value used is 2.
Bollinger Bands Gold Calculation
The middle Bollinger band 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 gold trading 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 trading chart gold 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 gold trading indicator uses the standard deviation of 2 which will enclose 95 % of all gold trading price action. Only 5 % of gold trading chart gold price action will be outside the 3 gold trading bollinger bands, this is why gold traders open or close gold trading trades when gold price hits one of the outer Bollinger Bands.
The Bollinger Bands gold trading 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 trading prices.
Bollinger Bands gold trading indicator compares the current closing gold price with the moving average of the closing gold 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 gold trading indicator.