An indicator that draws lines a “fixed percentage” above and below a moving average, to show how far the price has moved away from the average.
- Weapon tier
- Advanced
- Slots used
- On chart 3/6
Concept
The middle line (Middle) is the simple moving average of the last 20 closes, the Upper line is drawn 5% above it, and the Lower line 5% below it.
It looks like Bollinger Bands, but the width does “not” widen or narrow with volatility. The lines always sit the same percentage away from the average, so you can read “how many percent away from the average” at a glance.
- Middle
- Upper
- Lower
Charts by TradingView Lightweight Charts™
80 candles with the three Envelope lines and volume. The price rises and falls gently along the middle line and stays mostly between the two outer lines. At candle 60 (↑ marker) the low touches the Lower line, and within a few candles the close is back above the middle line. Near the end the price rises to around the Upper line. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
At the candle with the ↑ marker, the lower wick touches the Lower line and the candle closes above it. This is a scene where the lower line “held” within a gentle trend. When the trend turns, the price can break through the lower line and keep falling. Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
How it is calculated
Middle = the simple average of the last 20 closes. It is the same line as the moving average in lesson 3.
Upper = Middle × (1 + 5%), Lower = Middle × (1 − 5%).
The width is always the same percentage, regardless of how much the price swings. So on a jumpy stock the price leaves the lines often, and on a quiet stock it hardly ever touches them. Adjust 5 to fit the stock.
Parameters
| What it sets | Name in the game | Default | Range |
|---|---|---|---|
| Candles used for the average | period | 20 | 2 – 200 |
| Distance between the lines and the average (% of the average) | percent | 5 | 0.5 – 30 |
Trading ideas
Pullback trading: when the price moves up and down around the average without a clear trend, some traders buy near the Lower line and sell near the Upper line. The chart on this page shows a bounce from the lower line.
Dips within a trend: in a gentle uptrend, some traders buy a pullback to the lower line as a spot “far from the average”.
Common traps
- In a strong trend the price keeps going outside the lines. Buying or selling against it just because it touched a line means fighting the trend.
- Because the width is fixed, it may not suit every stock or period. If the price never touches the lines, or is always outside them, 5 does not fit that stock.
- None of these are sure signals. Read them together with the trend and volume.
In the game
- “Envelope” is a “Advanced” weapon and uses 3 “On chart” lines (limit 6).
- Together with the two Simple Moving Average lines in the starting setup (2 lines), it uses 5 lines, leaving 1 free.
- With the same period, the Middle line is the same line as Simple Moving Average. The space between the lines is not filled; only the three lines are drawn.
Related indicators and lessons
- Bollinger Bands — An indicator that uses three lines, a moving average in the middle and a band above and below it, to show how much the price is swinging compared with usual.
- ATR — An indicator that shows, in price units, how much a single candle usually moves. It does not say which way; it only measures the size of the swings.
- Keltner Channels — An indicator that puts an exponential moving average in the middle and draws two lines above and below it, set apart by the usual daily range (ATR), to show the price’s “normal range”.
- Donchian Channel — An indicator that traces the highest and lowest prices of a recent period, showing the moment the price leaves its “range so far”.
- Standard Deviation — An indicator that shows, as a single number, how widely recent closes are scattered around their average. The larger it is, the harder the price is swinging.
- Chaikin Volatility — A volatility indicator that shows, as a % change, how much the gap between each candle’s high and low has been widening (or narrowing) lately.
- 3. Moving averages
- 2. Trends and sideways moves