Envelopes (Trading Bands) - Technical Analysis from A to Z
An envelope is comprised of two moving averages.
One moving average is shifted upward, and the second moving average is shifted downward.
Envelopes define the upper and lower boundaries of a security's normal trading range.
A sell signal is generated when the security reaches the upper band, whereas a buy signal is
generated at the lower band. The optimum percentage shift depends on the volatility of the
security - the more volatile, the larger the percentage.
Bollinger Bands - Technical Analysis from A to Z
Bollinger Bands are similar to moving average envelopes.
The basic interpretation of Bollinger Bands is that prices tend to stay within the upper- and lower-band.
The distinctive characteristic of Bollinger Bands is that the spacing between the bands varies based on the volatility
of the prices. During periods of extreme price changes (i.e., high volatility), the bands widen to become more forgiving.
During periods of stagnant pricing (i.e., low volatility), the bands narrow to contain prices.