What it is
An envelope is the simplest kind of band. It draws a moving average, then copies it a set percentage above and a set percentage below. Unlike Bollinger Bands or Keltner Channels, the width does not change with volatility. A 2% envelope is always 2% wide either side, whatever the market is doing.
That fixed width is both its strength and its limit. It is easy to read and easy to compare across time, but you have to choose a percentage that suits the market. 2% is wide for EURUSD on a 15 minute chart and narrow for a volatile crypto daily chart.
How it is calculated
1. Work out a moving average of the closes over the length (20 by default). WickSpeak uses an exponential moving average, which leans more on recent closes. 2. Upper band = average multiplied by (1 + percent / 100). With 2%, that is average times 1.02. 3. Lower band = average multiplied by (1 minus percent / 100). With 2%, that is average times 0.98. 4. The dashed middle line is the average itself.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| Length | 20 | 2 to 400 | Candles in the middle average. Longer makes the whole envelope smoother and slower to turn. |
| Percent | 2 | 0.1 to 20 | How far each band sits from the average. Pick it so price touches the edges only a handful of times on the chart you trade. |
How to read it
How to trade it
- 1
Tune the percent first. For gold on a 15 minute chart, try 0.3% to 0.5%; for US30 on 1 hour, around 0.5% to 0.8%. You want edges that are reached, not reached every candle.
- 2
Only fade the edges when the middle line is flat. When a candle closes back inside after poking beyond the lower band, buy on that close.
- 3
Put the stop beyond the extreme of the poke, for example 5 to 8 points below the low on 15 minute gold.
- 4
Target the middle line. If the trade reaches it, move the stop to entry and let a part run towards the opposite band.
- 5
If the middle line is clearly sloping, switch to buying pull-backs to the middle in the trend's direction instead.
A fade from the lower band is proved wrong if a second candle closes below the lower band, or if the middle line starts to slope down, because that means a trend has taken over from the range.
WickSpeak runs in your browser with nothing to install. When you add the envelope, it writes a plain-English reading on the live candle: what the indicator is, what it is doing right now, how to trade it and what would prove that reading wrong. It says whether price is near an edge, between the edges or outside them, and whether the middle average is flat or sloping, which decides whether a touch is a fade or a sign of trend strength.
In Playbook, our no-code strategy builder, the envelope can be a condition in a play. It can test whether the envelope: price closes above the upper band; price closes below the lower band; price is inside the bands; price is above it; price is below it. Each condition can run on any of 12 timeframes from 1 minute to weekly, combined with up to 11 others, and the play can be backtested on past candles with your own costs and turned into alerts on screen, by email or by phone push.
Best markets and timeframes
Best on markets that spend a lot of time ranging, such as major forex pairs during the Asian session, and on gold or indices in quiet periods. Re-tune the percent whenever you change market or timeframe because the width is fixed.
Common mistakes
- Using the same percent on every market, so the bands are miles away on one chart and hugging price on another.
- Fading the band in a strong trend, where price can ride an edge for many candles.
- Forgetting that volatility changes and a percent that worked last month may now be too tight or too wide.
Works well with
Questions traders ask
What are the best settings for moving average envelopes?
A 20 period average with 2% bands is the classic default and suits daily stock charts. Intraday gold, indices and forex need much smaller percentages, often 0.1% to 0.8%. Choose the value that makes price reach the bands only occasionally.
What is the difference between envelopes and Bollinger Bands?
Envelopes are a fixed percentage from the average and never change width. Bollinger Bands are set by standard deviation, so they widen when the market gets volatile and narrow when it calms. Envelopes are simpler; Bollinger Bands adapt.
Do envelopes use a simple or exponential average?
Platforms differ. Many use a simple moving average by default. WickSpeak's envelope uses an exponential average, which reacts a little faster to recent closes.
Are envelopes good for trend trading?
They can be. In a trend, price that keeps closing near the upper band shows strength, and pull-backs to the middle line are entries. The fade-the-edge approach is for ranges only.