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Envelopes

Envelopes is a technical indicator, which contains two moving averages: one moves upwards, another moves downwards. Bounds shift depends on the market volatility: the more volatile is the market, the more the shift is.

Price fluctuation is determined by upper and lower price range levels. If price reaches the upper band, a buy signal appears, but if price touches the lower band, a sell signal appears. Application of the Envelops indicator is based on the fact that prices are often stabilized and corrected towards an average value even after strong fluctuations, which are caused by people who want to buy or sell in the situation of reaching extreme values. The same principle is used for Bollinger Bands (BB) interpretation.

Calculation

Upper Band = SMA(CLOSE, N)*[1+K/1000]

Lower Band = SMA(CLOSE, N)*[1-K/1000]

where

SMA - Simple Moving Average;

N - averaging period;

K/1000 - deviations from the mean (measured in basis points).

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