Envelopes
Envelopes are formed with upper border U and lower border L. The formula is:
U = ( 1 + u / 100 ) x SMA (P, n)
L = ( 1 - d / 100 ) x SMA (P, n)
where
- U – upper border;
- L – lower border;
- u - % above the moving average;
- d - % below the moving average;
- SMA (P, n) – moving average.
The percentage ("u" and "d") should be set so that about 95% of price activity is contained within the envelope and 5% outside it. The indicator will then be adequate to the market balance and all prices will come back to the envelope after they exit it.
