The Envelope technical indicator is formed by two Moving Averages; an upper Moving Average and a lower Moving Average. The share price moves within these two moving averages.
The Envelope is useful in identifying or as a reference of share price trading ranges for a particular stock. As the share price is expected to be trading within the upper and lower zone, the indicator can be used as a buy or sell signal. In addition, it can also be used to identify overbought and oversold conditions in a market.
- A sell signal occurs when a share price reaches the upper band of the envelope, signifying an overbought condition, and there is a high probability of share price correction.
- A buy signal occurs when a share price drops to the lower band of the envelope, representing an oversold condition, and there is a high probability of share price rebound.
Since a share price tends to stay within the range form by two moving averages, it can be used as a reference of the share price trading zone, as well as buy or sell signal. As always, it is best to confirm all buy/sell signals with other indicators.
The envelope indicator is available on OSK188 and RHBInvest.