Moving Average Envelopes (ENV) found on trading view consists of one simple moving average and two envelopes. The envelopes are generally used for assessing if a security is in overbought or oversold markets as well as for spotting trends of different time periods.
How to use Moving Average Envelopes (ENV)
ENVs are used for spotting extreme price movements either going up or down. The envelopes can also be used in other forms of techcnial analysis, such as when used in mean reversion.
Price breaking above the top envelope is a significant sign of strength, while prices breaking below the lower band is a sign of significant weakness. In this regard, ENV are similar to Bollinger Bands, except with different calculations.
The other way to read ENV is during a ranging market. During this time it’s expected that the sideways trading will continue for some time before breaking out into a trend. When prices do break out of this sideways pattern, one can be alerted as it passes the lower or upper envelope.
Mean reversion is another way that one can use ENV. It’s an accepted theory that prices have a habit of reverting to the mean. So if you see that prices are consistently in the upper or lower territories, then in all likelihood, prices will eventually come back to the middle moving average. You can use this information for setting entry as well as exit points as part of your trades.
To conclude, Moving Average Envelopes are an accepted way of spotting overbought and oversold areas, as well as to get a general feel of the price trend. When these evelopes are violated by strong price action, this is considered to be a significant event. You can choose to trade around these events or to wait a few bars for confimation of the signal.