Moving Average Envelope on a Live Gold Chart

What it shows

Three lines over the candles: the basis in the middle, the upper line above it and the lower line below it. The upper and lower lines are always the same percent away, so they follow the basis up and down at a constant distance.

How Pravex works it out

1. Basis: the simple average of the source over Length, or an EMA of it when Use an EMA for the middle is on.
2. Turn the distance setting into a fraction: k = distance ÷ 100.
3. Upper = basis × (1 + k) and lower = basis × (1 − k). Made-up numbers to show the step: a basis of 100 at 2.5% gives an upper line at 102.5 and a lower line at 97.5.

Settings

Setting	Default	What changing it does
Length	20	How many candles the basis averages. A longer Length gives a smoother basis that trails price more.
Distance from the middle (%)	10	How far the two outer lines sit from the basis, as a percent of the basis. The default of 10 is very wide for a one-hour gold chart, so on short timeframes you will usually want a smaller number, one where the lines catch the swings you care about.
Source	close	The price the basis is averaged from. Because the outer lines are a percent of the basis, any change here moves all three lines together.
Use an EMA for the middle	Off	Off uses a simple average for the basis. On uses an EMA, which weighs recent candles more and turns sooner.

How traders read it

The outer lines are stretch markers. A close outside the upper line means price is further above its average than usual for your percent setting, and a close under the lower line means the same on the downside. What you do with that depends on your plan; the lines only measure distance.

In a steady trend, price often rides near one outer line for a long time. In a range it bounces between them. Looking at which of those two pictures you have is the main use.

When it misleads

The distance is fixed, so it knows nothing about volatility. A quiet week leaves price well inside the lines and a news spike blows straight through them, and the same percent means something different each time. You have to retune the distance when the market changes character. Bands that adapt to the spread of recent closes, such as Bollinger Bands, handle that better.

Questions and answers

What is the Envelope indicator?

It is a moving average with two copies of it, one a set percent higher and one a set percent lower. Together they form a channel around price.

How is the Envelope different from Bollinger Bands?

Envelope lines stay a fixed percent from the average. Bollinger Bands set their distance from the spread of recent closes, so they widen and narrow with the market.

Why are the envelope lines so far from price on gold?

The default distance is 10%, built for slow daily charts. Hourly gold rarely moves that far from a 20-candle average, so the lines sit out of reach; something near 0.5% to 1% is closer to how far an hourly swing stretches.

Can the Envelope use an EMA?

Yes. Switch on Use an EMA for the middle and the basis becomes an exponential average, which turns sooner. The outer lines follow it at the same percent.

Related: Bollinger Bands, Keltner Channels, Donchian Channels, Simple Moving Average, every indicator.