Envelopes

Envelopes

Envelopes are lines placed at fixed percentages above and below a moving average line. Envelopes help determine when a market has traveled too far from its moving average and is overextended.

Source: Murphy, John. Technical Analysis of the Financial Markets; (c) 1999.

The following is an example of an envelope.

Envelopes

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Charts created using TradeStation. ©TradeStation Technologies, 2001-2009.  All rights reserved. www.TradeStation.com

The following chart displays an envelope using a 20 day moving average.

moving_average_envelopes

 

 

 

 

 

 

 

 

 

 

Source: Charts created by Bloomberg LP.  All rights reserved. Click here for more information on Bloomberg.