Price Envelopes

Overview

Price Envelopes plot fixed percentage bands above and below a Simple Moving Average, creating a straightforward volatility channel for identifying overextended price moves and potential reversal zones. They are among the simplest band indicators available and work well in ranging forex and stock markets. Compare Price Envelopes with Bollinger Bands in our indicator guide library to decide which suits your style.

How It Works

Upper Envelope = SMA(N) × (1 + percentage). Lower Envelope = SMA(N) × (1 − percentage). Common settings use a 20-period SMA with a 2.5% envelope width. The bands remain a fixed distance from the MA, unlike Bollinger Bands which adapt to volatility.

Key Signals

• Price touching or exceeding the upper envelope = potentially overbought.
• Price touching or exceeding the lower envelope = potentially oversold.
• Price returning to the SMA from an envelope extreme = mean-reversion entry.

Common Mistakes

• Using the same percentage across all assets — volatile assets need wider envelopes.
• Trading envelope touches in strong trends as reversal signals — they are continuation in trends.
• Not adjusting envelope width as the asset's volatility regime changes.