How Bollinger Bands CFD Indicator Works

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

Bollinger Bands CFD Trading 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 Deviations

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

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

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

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