Moving Average Envelope: fixed-percentage bands around an average

What it measures

An envelope places bands a fixed percentage above and below a moving average. Unlike Bollinger Bands or Keltner Channels, the width does not respond to volatility at all.

That sounds like a weakness and is sometimes the point: a fixed percentage answers "how far from the average is far" with a number you chose, rather than with one the market chose.

It is the oldest and simplest of the band families, and the one whose behaviour is easiest to reason about.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Compute a moving average of the source over the period.

2. 2

   The upper band is the average multiplied by one plus the percentage.

3. 3

   The lower band is the average multiplied by one minus the percentage.

Settings

A twenty-period average with two to three percent bands is conventional on daily equities and far too tight for crypto. Set the percentage from the instrument’s own typical range rather than from a default, or use an ATR-based band instead.

How to read it

• Price reaching a band means it has moved a fixed distance from its average — no more and no less.
• Because the width is fixed, band touches become frequent when volatility rises and rare when it falls, which is exactly the information an adaptive band hides.
• It works best on instruments with stable volatility and worst on ones whose regime changes, which in crypto is most of them.
• The most defensible use is as a mean-reversion reference on an instrument you know well: you are asserting that two percent from the average is far for this market, and the chart will tell you plainly and quickly whether that assertion has stopped being true.

Where it misleads

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