Envelope

 What is Envelope?

    The Envelope is a technical analysis indicator that consists of a set of bands placed above and below a security's price. The bands are based on a moving average and a percentage deviation from that average.

How is it calculated?

The Envelope is calculated using the following formula:

Moving Average (MA) = n-period Simple Moving Average (SMA) of Close prices
Upper Envelope = MA * (1 + %)
Lower Envelope = MA * (1 - %)

where:

• MA is the moving average of the closing prices over the specified period (usually 20 periods).
• % is the percentage deviation from the moving average used to calculate the upper and lower bands.

When to use it?

Traders use Envelopes to identify overbought and oversold conditions in a market. When prices move outside the bands, it may suggest a continuation or reversal of the current trend.

Limitations and Recommendations

• Envelopes may generate false signals during periods of low volatility.
• It's essential to combine Envelopes with other technical indicators or analysis techniques to confirm signals.
• Adjusting the parameters (e.g., window size, percentage deviation) may improve the effectiveness of Envelopes in different market conditions.

Disclaimer:

This is an educational/learning app. It is not intended to provide investment advice. Trading involves risks, and decisions should be made based on thorough research and understanding of the markets. Always consult with a qualified financial advisor before making any investment decisions.