Standard Deviation

Standard deviation is a statistical term that provides a good indication of volatility. It measures how widely values (closing prices for instance) are dispersed from the average. Dispersion is difference between the actual value (closing price) and the average value (mean closing price). The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.

The calculation for the standard deviation is based on the number of periods chosen. 20 days, which represents about a month, is a popular number of periods to use and will be used in the example below.

The steps for a 20-period standard deviation formula are as follows:

1. Calculate the mean price. Sum the 20 periods and divide by 20. This is also the average price over 20 periods. (2246.06/20 = 112.30)
2. For each period, subtract the mean price from the close. This gives us the deviation for each period (-3.30, -9.24….).
3. Square each period's deviation (10.91, 85.38…).
4. Add together the squared deviations for periods 1 through 20 (921.28).
5. Divide the sum of the squared deviations by 20 (921.28/20 = 46.06).
6. Calculate the square root of the sum of the squared deviations. The square root of 46.06 equals 6.787.

The standard deviation for the 20 periods is 6.787.

Bollinger Bands

Developed by John Bollinger, Bollinger Bands are an indicator that allows users to compare volatility and relative prices levels over a period of time. The indicator consists of three bands designed to encompass the majority of a currency's price action.

1. A simple moving average ("SMA") in the middle
2. An upper band (SMA plus 2 standard deviations)
3. A lower band (SMA minus 2 standard deviations)

Standard deviation is a statistical term that provides a good indication of volatility. Using the standard deviation ensures that the bands will react quickly to price movements and reflect periods of high and low volatility. Sharp increases or decreases in prices, and hence volatility, will lead to a widening of the bands. Long periods of sideways movements will lead to a narrowing.

Bollinger Bands are designed to capture the majority of price movement. When prices move beyond the upper or lower band, they are considered high (overbought) or low (oversold) on a relative basis.

Technical Studies and Charting

Technical analysis has witnessed the development of a large number of technical studies (or technical "indicators") over the past several years.

Click on the technical study below for a definition and to learn how it may be applied to trading:

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• Bollinger Bands
• Moving Average
• Parabolic SAR
• Moving Average Convergence/Divergence (MACD)

• The Relative Strength Index (RSI)

• Momentum
• Stochastic Oscillator
• Slow Stochastic
• CCI ("Commodity Channel Index")
• ATR ("Average True Range")
• Rate-of-change (percent)
• Standard Deviation
• Gann numbers
• Waves
• Gaps
• Trends
• Double bottom
• Double top

• Diamond

All of the above technical studies are generated automatically by GCI's integrated charting system.  To access these studies, select "View" and then "Charts" from the menus across the top of your trading platform.  Next, click on the desired currency and time frame.  The chart will automatically generate:

You can then click on the "Studies" button in the upper right of the chart window and select the desired technical study as well as its parameters.