Elder Auto Envelopes: Standard-Deviation Channels and Profit Targets

Summary

This note explains an automatic envelope channel drawn parallel to a moving average. The channel width is calibrated so that it contains roughly 95% of prices observed over the prior two or three months on a daily chart, leaving only unusually high or low observations outside. The envelopes are presented as potential exit guides: traders holding long positions may consider selling near the upper boundary, while short sellers may consider covering near the lower one.

The automatic version estimates channel size from the standard deviation of a chosen number of bars. Its update frequency is limited—generally weekly, or monthly on a weekly chart—and a fixed-size setting is described for switching modes. The text provides a conceptual indicator description rather than empirical validation: it reports no tested assets, returns, or comparison against alternative exits. Channel touches are therefore suggested reference points, not demonstrated reversal signals or guarantees of profitable exits.

Key ideas

• Envelope boundaries run parallel to a moving average and are sized to contain most recent prices.
• The channel width is based on the standard deviation over a selected number of bars.
• The upper and lower boundaries are suggested as potential exit targets for long and short positions, respectively.
• The indicator limits how often its sizing changes, with a fixed-size option also described.
• The note gives no performance evidence that channel touches predict reversals or improve returns.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.