Trend indicators

Envelopes

Two lines a fixed percentage above and below a moving average, marking where prices are stretched.

The idea in plain words

Prices tend to swing around their average and rarely stray very far from it. Envelopes draw a fence at a fixed distance, say 0.1% for a calm currency pair or 2–3% for a stock, so you can see when a move has gone unusually far.

How it is calculated

Take a moving average and add or subtract a fixed percentage of it.

Upper = MA × (1 + deviation ÷ 100)
Lower = MA × (1 − deviation ÷ 100)
Defaults: 14-period SMA, deviation 0.1%

How to use it

Set the percentage so that most candles stay inside the envelope on your timeframe.
In ranges, touches of the bands can mark turning points.
In trends, closes outside the band in the trend direction show strength.

Drawing conclusions

Unlike Bollinger Bands, envelopes do not widen in volatile times, so they are easier to read but adapt less.

Example

On EURUSD H1 with a 0.15% envelope, the price touches the lower band at 1.0790, about 16 pips below the average, and drifts back to the average over the next few hours.

Prices in examples are illustrative.

Watch out for

The right percentage depends on the market and timeframe: adjust it rather than using the default everywhere.

A little history

Percentage bands around a moving average are one of the oldest band techniques, used long before volatility-based bands such as Bollinger's.

Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.