SMA Envelope

A simple moving average with a band drawn a fixed percentage either side.

What it measures

How far the price has strayed from its simple moving average, measured against a fixed percentage band.

How traders read it

Traders read a close outside the band as stretched: in a range that suggests a move back toward the average, in a strong trend it shows the trend’s strength. The right width depends on the market and the timeframe; 0.2% suits hourly EUR/USD, a few percent suits daily stocks.

Formula

middle = SMA(periods)
lower = middle × (1 − envelope / 100)
upper = middle × (1 + envelope / 100)

Settings and output

Call: smaEnvelope(periods, envelope)

Setting	Chart default
`periods`: Periods	20
`envelope`: Envelope (%)	none

What you get: a list of 3, in this order: 1. a number; 2. a number; 3. a number (“sma”).

Warm-up: with smaEnvelope(20, 0.2), it asks for 20 bars of history and a run-up of 1, and its first value came on bar 21 of the example data.

Chart

SMA Envelope drawn by its own code on example prices

The prices are made up, hourly, and the same on every page, so the chart shows how the indicator behaves, not how a market behaved.

In an algorithm

function onIntervalClose() {
  const band = smaEnvelope(20, 0.2);
  if (OPEN_POSITIONS_COUNT === 0 && CLOSE < band[0]) {
    log("Close below the lower band");
  }
}

envelope has no default: give it in every call.