What do percentage envelopes represent?

Percentage envelopes represent a percentage of the moving average plotted above and below it. This technical analysis tool is used to identify overbought and oversold conditions in the market. The envelopes are created by determining a certain percentage above and below a specified moving average, thus framing the price action within these bands.

When the price descends toward the lower envelope, it may indicate that the asset is oversold, potentially signaling a buying opportunity. Conversely, when the price approaches the upper envelope, it could indicate that the asset is overbought, suggesting a potential selling opportunity. The use of percentage envelopes helps traders visualize price movements relative to the moving average and make informed trading decisions based on market trends.