What is Envelopes?
Envelopes draw a simple moving average through price with two bands around it, each a fixed percentage of the average away from it. The bands show how far price has stretched from its recent average, measured in proportion rather than in price units.
The width is a choice you make, not a measurement. Envelopes do not widen or narrow with volatility, the way Bollinger Bands do, and they do not predict whether a stretched price will return to the average.
How to use Envelopes
- Price near a band. A close near the upper band means price is well above its recent average by the chosen percentage; near the lower band, well below it.
- Price outside a band. In a range this is often read as overextended. In a strong trend price can ride along or beyond a band for a long time.
- The basis line. The centre line is an ordinary simple average, so its slope and price's position against it read the same way as a plain moving average.
- Fitting the width. A useful width is one where price touches the bands now and then. If the bands never come near the candles, the percentage is too wide for that market and timeframe.
These are ways to read the bands, not entry signals on their own.
Settings
| Setting | Default | What it changes |
|---|---|---|
| Length | 20 | Bars in the simple average at the centre. Lower follows price more closely; higher is smoother and later. Minimum 1. |
| Percent | 10 | How far each band sits from the average, as a percentage of it. 10 places the bands 10% above and below. Minimum 0, maximum 1000. |
| Source | Close | Which price each bar contributes to the average. Open, high, low and the averaged sources such as hl2 and hlc3 are also available. |
Adjust the length, width and price source in the indicator settings. The 10% default is wide for intraday crypto charts, so expect to lower it.
Calculation
The centre line is a simple moving average. Each band is that average multiplied by a fixed factor:
basis = SMA(price, 20)
upper = basis * (1 + 10 / 100)
lower = basis * (1 - 10 / 100)With the defaults, the upper band is 1.1 times the 20-bar average and the lower band 0.9 times it. The average needs 20 bars before it has a value, so nothing is drawn on the first 19 bars of loaded history.
Because the bands are a proportion of the average and not a fixed distance, the gap between them in price terms widens as price rises and narrows as it falls, while staying the same percentage.
Limitations
- The width does not adapt. A percentage that suits a quiet week is wrong in a volatile one, and the bands do not adjust. You have to retune it per market and timeframe.
- The default is wide. At 10%, the bands on a 1H BTC chart usually sit far from the candles and only stretch the price scale.
- It lags. The centre line is a simple average of past prices, and the bands inherit its delay.
- Touching a band is not a reversal. In a trend price can stay at or beyond a band for many bars.
- The live candle moves. The current bar's values change until that bar closes.
Frequently asked questions
Envelopes are a simple moving average with two bands drawn a fixed percentage above and below it. They show how far price has moved from its recent average in proportional terms, so a touch of a band means price is that percentage away from the average.
Bollinger Bands set their width from the standard deviation of recent prices, so they widen in volatile periods and narrow in quiet ones. Envelopes use a constant percentage, so their shape stays the same whatever the market does. That makes the width a decision you make for each market and timeframe rather than something the indicator measures.
Choose a width at which price reaches the bands occasionally on the market and timeframe you trade. The built-in default of 10% suits daily charts of slower markets and is usually too wide on intraday crypto charts, where a few percent or less is common. Test the setting rather than adopting a number.
Yes. The indicator declares three inputs: Length, default 20 with a minimum of 1; Percent, default 10 with a range of 0 to 1000; and Source, default close. Open the indicator's settings on the chart to change them.
Values on bars that have already closed are not revised. The current candle's average and bands move while that candle is live and settle when it closes, which is normal for any moving average.
Use the Add to chart button at the top of this page. It opens BTC/USDT on Binance in the Altrady Charts terminal with the built-in Envelopes already applied. On any other market, open the indicator picker on the chart and choose Envelopes from the Volatility group.