Envelopes
Envelopes Technical Indicator is formed with two
Moving Averages one of which is
shifted upward and another one is shifted downward. The selection of
optimum relative number of band margins shifting is determined with
the market volatility: the higher the latter is, the stronger the
shift is.
Envelopes define the upper and the lower margins of the price range.
Signal to sell appears when the price reaches the upper margin of the band;
signal to buy appears when the price reaches the lower margin.
The logic behind envelopes is that overzealous buyers and sellers push the
price to the extremes (i.e., the upper and lower bands), at which point
the prices often stabilize by moving to more realistic levels. This is
similar to the interpretation of Bollinger Bands.
