The Simple Moving Average Envelope consists of moving averages calculated from the underling price, shifted up and down by a fixed percentage.
When prices rise above the upper band or fall below the lower band, a change in direction may occur when the price penetrates the band after a small reversal from the opposite direction.
Remember, because only previous data is used to compute a moving average, it will always lag behind the actual prices. As a result, moving averages will not predict a change in trend, but rather follow behind the current trend. Use them for trend identification and trend following purposes and not for prediction.
When the market constantly ranges between the moving average and the envelope, the trend is intact.
The following formulas are used to calculate the boundaries:
Top Envelope: MATE = MA * ((100 + PERCENT) / 100)
Bottom Envelope: MABE = MA * ((100 - PERCENT) / 100)
Envelope Parameters
|
Parameter |
Description |
|
Display |
Opens sub-window to set parameters •Color = Line color. •Weight = Line thickness. •MarkIt = Opens Specify Conditions window. •ShareScale = Determines whether sharing of the vertical scales between studies is accepted. Auto = System determine whether sharing is feasible. On = Scale is shared regardless of the functions and studies displayed. Off = Scale is not shared. ShareScale must be On if study is overlaid on a study with multiple outputs. |
|
Offset |
Distance in bars between the current bar and the bar to use in the calculation. A positive offset uses future bars. A negative offset uses past bars. For example: 1 = next bar -2 = two bars back from current bar |
|
Type |
Moving average calculation. Values: •Simple •Smoothed •Exponential •Weighted •Centered •Median •Trix •Exponential Hull |
|
Period |
Number of bars in the lookback range. |
|
Price |
Price used to calculate study values. |
|
Mult |
Values: Top = adds the selected percent to the center envelope to create the top envelope. Bot = subtracts the selected percent from the center envelope to create the bottom envelope. |
|
Add |
Values: •Top = adds this amount to center envelope to calculate top envelope •Bot = subtracts this amount from center envelope to calculate bottom envelope |