Envelopes are a form of support/resistance indicators, generating automatic support and resistance levels by drawing two moving average lines shifted up and down by a percentage proportional to the level of volatility for a particular security. The more volatile a security the wider an envelope should be, the lower the narrower. Generally envelopes are fitted according to the characteristics of a particular price chart establishing what may be considered as a normal range.

As the name implies, this indicator surrounds prices with two moving averages lines that may be treated as supports and resistance working much like the bands in the Bollinger Band system. The Lower Bands are considered as the support area while the Upper Band is thought of as a resistance. Ideally prices should tend to bounce off the envelopes at their approach thereby generating buy or sell signals.



In the preceding chart, we demonstrate the use of Envelopes as a support and resistance indicator with the yellow lines highlighting instances where the bands function as supports and blue lines highlighting resistance regions.