How Bollinger Bands XAUUSD Indicator Works
Bollinger Bands xauusd indicator calculations uses standard deviation to draw the bands, the default value used is 2.
Bollinger Bands XAUUSD Trading 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 xauusd 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 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 price action movement. Two standard deviations away from the mean either plus or minus, will enclose 95 % of all gold price action movement.
This is why the Bollinger Bands xauusd indicator uses the standard deviation of 2 which will enclose 95 % of all gold price action. Only 5 % of chart gold price action will be outside the 3 xauusd bollinger bands, this is why xauusd traders open or close gold trades when gold price hits one of the outer Bollinger Bands.
The Bollinger Bands xauusd indicator main function is to measure gold price action volatility. What the Bollinger bands upper and lower limits try to do is to confine gold price action of up to 95 percent of the possible closing xauusd prices.
Bollinger Bands xauusd indicator compares the current closing gold price with the moving average of the closing gold price. The difference between these two xauusd prices is the volatility of the current gold price compared to the moving average. The gold price volatility will increase or decrease the standard deviation of the bollinger bands xauusd indicator.