Envelope

Filed Under » ,
Dictionary Says

Definition of 'Envelope'

A type of technical indicator typically formed by two moving averages that define upper and lower price range levels. An envelope is a technical indicator used by investors and traders to help identify extreme overbought and oversold conditions in a market. The envelopes, which typically appear overlaid on a price chart, are also useful in identifying trading ranges for a particular trading instrument.

A moving average envelope calculates two moving averages using the high price and low price inputs. Both averages are calculated using price data from the same number of bars, as determined by the input length. The average of the high price is increased by a user-specified percent and then plotted; the average of the low price is reduced by a user-specified percentage and then plotted. The envelope inputs can be customized to suit each investor's or trader's style and preferences.

envelope pattern
Investopedia Says

Investopedia explains 'Envelope'

While traders may interpret and apply the information in unique ways, many traders use an envelope so that a sell signal occurs when price reaches the upper band, signifying an overbought market, and a buy signal occurs when price drops to the lower band, representing an oversold market. Since a trading instrument's price tends to stay within the range represented by an envelope, the theory is that prices will continue to bounce between the upper and lower thresholds.

Articles Of Interest

  1.

    Moving Average Envelopes: Refining A Popular Trading Tool

    Traders can benefit from experimenting with envelopes, which help spot trends after they develop.

  2. Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.

  3. A Primer On The MACD

    Learn to trade in the direction of short-term momentum.

  4. When To Short A Stock

    Learn how to make money off failing shares.

  5. A Top-Down Approach To Investing

    Use a global view to determine which stocks belong in your portfolio.

  6. Top 4 Most Scandalous Insider Trading Debacles

    Here we look at some of the landmark incidents of insider trading.

  7. Market Summary for September 6, 2013

    The major U.S. indices moved lower this week, after a lackluster jobs report sent shares lower on Friday morning.

  8. Market Summary for August 30, 2013

    The major U.S. indices moved lower this week, but remain within long-term price channels. Traders should watch for breakouts or breakdowns from these price channels for the best opportunities.

  9. Market Summary for August 23, 2013

    The major U.S. indices were mixed this week, with many of them lying at critical pivot points and support levels.

  10. 4 Stocks, 4 Topping Patterns

    Each of these four stocks has a different topping pattern potentially in play. The similarity is that if they decline much further a lot more selling could be forthcoming.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center