How Bollinger Bands Gold Indicator Works

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

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

This is why the Bollinger Bands gold indicator uses the standard deviation of 2 which will enclose 95 % of all xauusd 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 xauusd price hits one of the outer Bollinger Bands.

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

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