How Bollinger Bands Metals Trading Indicator Works

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

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

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

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

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