Trading Envelopes for short- and long-term analysis

BY Chris Andreou

|January 4, 2021

The logic behind Trading bands is that overzealous buyers and sellers push prices to extremes. Trading Envelopes define the upper and lower boundaries of price.

Bands can be used to help determine market extremes:

  • Short term analysis: We use 3% envelops in a 21-day moving average
  • Long range analysis: We use a 5% envelop in a 10-week average or 10% envelop in a 40-week average.

Measuring Market Extremes

Trading bands are constructed above and below a moving average and shifted some percentage up and down from the moving average, this results in trading Envelopes being constructed “around” price.

The bands need not be symmetrical, but they do make a reference to some central point.


Trading bands are constructed above and below a moving average as a method of measuring extreme market moves.

  • Sell Signals are generated when prices are near the upper extreme.
  • Buy Signals are generated when prices are near the lower extreme.

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