Set of two moving averages that mark the upper and lower limits of the trading price range of a commodity, currency, or security for a particular trade or trader. These averages are plotted certain percentages above and below the average price line in a trading chart. The purpose of an envelope is to dampen or help escape the effect of sharp price movements that can dislodge (whipsaw) traders out of their trading positions. When a price breaches either of the limits it might indicate the market is ripe for a movement in the opposite direction.
Where these limits are placed depends upon the type of market, trading position, or market trend. For example, a short-term trader might draw these limits 3 percent above and below a 21-day average in a specific situation, and a long-term trader might draw them 10 percent above and below a 40-week average, in the same situation. An envelope is similar to but not the same as Bollinger Bands. also called moving averages envelope.

Use envelope in a sentence

Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
co-op mailing attention line