Envelope is a line that deviates from the moving average line up and down, and its name comes from the fact that it looks like it wraps around.
It is used to see how far the price is from the moving average.
Sirius Futures Chart
The upper and lower limits of Envelope are used as points for reversing trends in trading signs, and as a guide for support and resistance. This comes from the idea that prices that deviate to some extent from the moving average will be returned to the moving average. The standard of divergence depends on the market type, and it is generally said that in the stock market, it is 5 to 10% above and below the 25-day moving average, and in the foreign exchange market, it is 2 to 3%.
- When the price approaches or reaches the lower line, it is judged that there is a high possibility of a reversal rise and it is oversold, and a “buy” sign.
- When the price approaches or reaches the upper line, it is judged that there is a high possibility of a reversal decline and it is overbought, and a sign of “sell”.
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