Discussion in 'Trading' started by dagve, Oct 22, 2001.

  1. dagve


    I have heard that envelopes are a popular trading strategy at bright trading. Does anyone know what an envelope is and how to trade them? thanks
  2. Magna

    Magna Administrator


    Envelopes are similar to moving averages in that they are channels around an invisible moving average (but based on it). One line is above the (invisible) ma and one line is below it, equally spaced. The problem I've found with them is that each stock has a different requirement, so that a channel width that works for one stock may be totally unsuitable for another stock. There's no shortcut to determining the proper channel width, it's trial and error, stock by stock. And the channels aren't adaptive to the stock's volatility any more than a moving average is adaptive -- that's where something like bollinger bands have an advantage.
  3. gordo


    Haven't used regular envelopes, looked at them a little, desided on bolinger bands instead. They take a little getting used to, but if you catch on to them, can be quite useful for rough estimates of support/resistence, strength of breakouts (volatility expansion), to name a few. Good trading to ya!
  4. dagve -

    As noted earlier, you need to be able to manually or hopefully automatically optimize an envelope study to the particular security. The idea being that you're looking for an envelope width that tends to be about where a swing/reversal will occur.

    Bollinger Bands are used sometimes with that in mind, but more often than not a security will have the tendency to walk the bands and just keep going.

    Volatility bands are an interesting study. There is often a tendency for a security to continue in the direction of a volataility band breakout/breakdown. Have seen lots of times when the price will break through the V band and then just continue in that direction for several points all the while walking the Bollingers right up with it.

    Using the V bands along with some other indicators and intraday support/resistance projections can help get into short term trends (or longer term trends if you're using them on Daily charts) early.
  5. dagve


    thanks for the info everyone, very helpful.