Bollinger Bands Technical Analysis & Bollinger Signals

Developed by John Bollinger

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

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

The distance where the bands are plotted is decided by another indicator known as the standard deviations. Standard deviation is a measure of volatility in the market or that of a xauusd.

Since the market price volatility keeps on changing, the standard deviations will keep oscillating, & since Bollinger bands are drawn using the standard deviation method/calculation the distance of the bands will keep on adjusting themselves to the volatility conditions.

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

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

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

Bollinger Band Indicator - Place Bollinger Band Indicator in Chart

XAU USD Analysis and Generating Signals

Bands provide a relative definition of high & low

Used to identify periods of high & low volatility

Used to identify periods when the prices are at extreme regions

the Squeeze

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

XAUUSD Consolidation

Consolidation Pattern

the Bulge

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

Bollinger Band Indicator Analysis in XAUUSD - Bollinger Bands Indicator

Double Tops & Double Bottoms

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

Is Bollinger Band Indicator a Trading or Lagging Indicator

The Head Fake - Gold Whipsaw

Traders should be on look out for false breakouts known as whipsaws or head fakes.

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

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

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