12 ENVELOPES AND BOLLINGER BANDS

Envelopes

It has already been established that moving averages (MAs) can act as important juncture points in their role as support and resistance areas. In this respect, the longer the time span, the greater the significance of MAs. This support and resistance principle can be taken one step further by constructing symmetrical lines parallel to an MA of any variety, called envelopes (see Figure 12.1).

FIGURE 12.1 An MA with a + and - 10% Envelope

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This technique is based on the principle that stock prices fluctuate around a given trend in cyclical movements of reasonably similar proportion. In other words, just ...

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