Bollinger Bands in gold trading
Bollinger Bands plot a 20-period moving average with bands two standard deviations above and below; on gold they show volatility squeezes and stretched moves.
Also called Bollinger Bands®, Volatility bands
Bollinger Bands, developed by John Bollinger, consist of a 20-period simple moving average with an upper and lower band set two standard deviations away. The bands widen as volatility rises and narrow as it falls. Because they are built from standard deviation, roughly 95% of closes fall inside the bands under normal conditions; a close outside is statistically unusual, which is not the same as a reversal signal.
How it applies to gold trading
Two uses dominate on gold. The squeeze: when the bands contract to their narrowest in weeks, often during the Asian session or ahead of a data release, a volatility expansion usually follows, and traders prepare for a breakout without predicting its direction. The walk: in a strong trend gold closes along the upper or lower band for many bars, and fading those closes is costly. A close outside the band is a reversal candidate only in a ranging market and near a level.
Band width is itself a volatility measure that compares well with ATR, and the middle band (the 20 SMA) is a common dynamic support in trends.
The volatility lesson on this site pairs Bollinger Bands with ATR on the same gold chart, showing how the two measures agree on regime changes and how each is used for stops.
A common mistake
Selling because price touched the upper band. Touches and closes outside the band are common during gold’s trending sessions and often continue rather than reverse.
See also: ATR, Volatility, Moving average, Consolidation and range.
Frequently asked questions
What Bollinger Band settings are best for gold?
The standard 20-period, 2-standard-deviation setting is the most widely used and is what the squeeze and walk observations are based on. Changing the settings changes what the bands mean.
Does a Bollinger squeeze predict direction on gold?
No. It signals that volatility is low and likely to expand. Direction comes from structure, session timing or the news that triggers the expansion.