Moving average envelope
Two lines drawn a fixed percent above and below a moving average, forming a band around price.
What it shows
An envelope takes a moving average and adds a fixed percent above and below it. The band is the same percent wide at all times.
Price touching the outer lines means it is that percent away from its average. Unlike Bollinger bands, the width does not change with volatility.
How we find it
The same code that draws it on your chart follows these steps, with the same result every time.
- Compute an SMA of N bars.
- Upper line = SMA × (1 + p).
- Lower line = SMA × (1 − p).
- Plot the three lines.
Starting values: N 20; p 3%. These are proposed and will be tuned on real price data before launch.
How to read it
- The middle line is the average.
- The outer lines are 3% above and below.
- Price outside the band is more than 3% from its average.
Status labels you may see
| Label | What it means |
|---|---|
| Inside the envelope | The last close is between the lines. |
| Above the upper line | Close is above the top. |
| Below the lower line | Close is below the bottom. |
What cancels it
Nothing cancels it.
What traders check next
- How often price touches the outer lines.
- Whether a different percent fits better.
- Whether volatility has changed.
Limits
- A fixed percent does not adapt to volatility.
- The right percent differs for each stock.
- Price can stay outside for a long time.
Try it in forecastviz
- Open any ticker and choose Moving averages → Moving average envelope in the left menu.
- Switch between 3M, 6M, 1Y to see how the picture changes.
- Compare with Bollinger bands and Keltner channels on the same chart.
Questions
How is it different from Bollinger bands?
Bollinger bands widen and narrow with volatility. Envelopes stay the same percent wide.
How do I choose the percent?
It depends on the stock. Calmer stocks suit smaller percents.
Related trends
Further reading
- Murphy, Technical Analysis of the Financial Markets
- Kaufman, Trading Systems and Methods
- Achelis, Technical Analysis from A to Z
Educational only. Not financial advice, and not a price forecast. Charts are drawn by code from past price data, which may be delayed.