EMA / SMA / WMA / SMMA envelope

What the numbers mean

Two numbers: the moving-average period, and the percentage offset that sets how far the bands sit above and below it. The offset is fixed, so unlike Bollinger Bands the envelope does not widen when volatility rises — a 2.5% envelope is always 2.5% wide.

• 20 period — the central average; sets what the bands are measured from
• 2 to 3% — typical for large-cap stocks on a daily chart
• 5 to 10% — needed for volatile small caps or crypto
• 0.5 to 1% — typical for intraday charts, where daily ranges are small

How it is used

Used to define a normal trading range around the trend: touches of the outer band mark stretched conditions in a range, while a sustained close beyond one marks a genuine breakout.

• Price at the upper band in a range → stretched; in a trend → simply strong
• Two closes outside a band → treated as a genuine breakout rather than a stretch
• Bands containing nearly all price action → the percentage is set about right

How it relates to everything else

An envelope is the fixed-width cousin of Bollinger Bands and Keltner channels. All three draw a corridor around a moving average; the difference is what sets the width — a fixed percentage here, standard deviation for Bollinger, ATR for Keltner. Fixed width means the envelope does not adapt when volatility changes, so it needs manual re-tuning that the other two handle automatically.

• Envelope = fixed % width · Bollinger = volatility width · Keltner = ATR width
• Useful precisely because it does not adapt — it shows volatility changing rather than absorbing it
• Check the percentage against the security's ATR as a share of price to pick a sane setting

What to watch for

The percentage has to be tuned per security and per timeframe. A setting that brackets a utility stock will be touched constantly by a volatile small cap, and the same setting becomes too wide when volatility collapses.