Glossary · Chart and price

Standard deviation

A statistical measure of how widely values spread around their average; in trading, a common gauge of price volatility.

By Sky Trade editorial teamUpdated November 5, 2026

Standard deviation (often written σ, sigma) tells you how far values typically sit from their mean. Applied to prices, a small standard deviation means closes cluster tightly around the average; a large one means they are spread out — a volatile market.

Its best-known use in trading is Bollinger Bands: the bands are drawn two standard deviations above and below a 20-period moving average. When the standard deviation falls the bands contract; when it rises they expand.

The statistics come with a caveat that matters. In a normal distribution about 95% of values lie within two standard deviations of the mean, and traders often repeat this as if price stayed inside the bands 95% of the time. Real price changes aren't normally distributed: large moves happen more often than the bell curve suggests, and the moving mean itself shifts as price trends. So a move beyond two sigma is unusual but not rare, and it is not a dependable reversal signal.

Standard deviation also looks backwards: it describes the recent past, not the next candle. See volatility explained and Bollinger Bands.

Example

The last 20 M1 closes of EUR/USD average 1.08500 with a standard deviation of 3 pips. The upper Bollinger Band therefore sits 6 pips above the average, at 1.08560.

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