Q: Tips

- The optimal percentage depends on the asset's typical volatility — use higher values for volatile assets - For stocks, 2-3% works well on daily charts; for crypto, 3-5% may be needed - Envelopes work best in ranging markets for mean-reversion strategies - In strong trends, price can stay outside the envelope for extended periods - Combine with RSI or Stochastic to confirm overbought/oversold at envelope touches - Consider using ATR-based channels (Keltner) for adaptive envelope width

Question 1

What is Envelopes?

Accepted Answer

Envelopes is a volatility indicator that plots two bands around a moving average at a fixed percentage distance. Unlike Bollinger Bands which use standard deviation, Envelopes use a constant percentage offset, creating parallel bands that move with the trend. They help identify overbought and oversold conditions as well as potential breakout points.

Question 2

How it works

Accepted Answer

Envelopes are calculated by adding and subtracting a fixed percentage from a simple moving average: ``` Middle = SMA(close, N) Upper = SMA(close, N) * (1 + K / 100) Lower = SMA(close, N) * (1 - K / 100) ``` Where N is the period (default 20) and K is the percentage offset (default 2.5%). The bands maintain a constant width relative to the moving average, unlike Bollinger Bands which expand and contract with volatility.

Question 3

Key features

Accepted Answer

- **Fixed-width bands** — Constant percentage creates predictable channel boundaries - **Mean reversion tool** — Price touching outer bands tends to revert to the middle - **Trend filter** — Price consistently above/below middle line confirms trend direction - **Simpler than Bollinger** — Easier to interpret since band width is constant

Question 4

Buy signals

Accepted Answer

- Price touches or crosses below the lower envelope and reverses back inside - Price crosses above the middle line (bullish momentum) - Price bounces off the lower envelope in an uptrend

Question 5

Sell signals

Accepted Answer

- Price touches or crosses above the upper envelope and reverses back inside - Price crosses below the middle line (bearish momentum) - Price fails at the upper envelope in a downtrend

Question 6

Parameters

Accepted Answer

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | Number of candles for SMA calculation | | Percent | 2.5 | Percentage offset from SMA |

Question 7

Sub-components

Accepted Answer

| Component | Description | |-----------|-------------| | `ENVELOPES_UPPER(20)` | Upper envelope value | | `ENVELOPES_LOWER(20)` | Lower envelope value |

Question 8

Example conditions

Accepted Answer

| Condition | Description | |-----------|-------------| | `close > ENVELOPES_UPPER(20)` | Price above upper envelope | | `close < ENVELOPES_LOWER(20)` | Price below lower envelope | | `close cross_over ENVELOPES_LOWER(20)` | Price crosses back above lower envelope | | `close cross_under ENVELOPES_UPPER(20)` | Price crosses back below upper envelope |

Question 9

Tips

Accepted Answer

- The optimal percentage depends on the asset's typical volatility — use higher values for volatile assets - For stocks, 2-3% works well on daily charts; for crypto, 3-5% may be needed - Envelopes work best in ranging markets for mean-reversion strategies - In strong trends, price can stay outside the envelope for extended periods - Combine with RSI or Stochastic to confirm overbought/oversold at envelope touches - Consider using ATR-based channels (Keltner) for adaptive envelope width