EMA Volatility Envelopes and a Range Contraction Wedge Signal

Summary

This indicator builds adaptive-looking price envelopes from an exponential moving average and a smoothed measure of the absolute deviation between closing price and that average. It forms upper and lower boundaries, then smooths price-aware versions of those boundaries. The gap between them acts as a measure of the envelope’s width.

The script marks a wedge when the lower boundary is rising while the upper boundary is falling, and highlights price when the envelope width has been declining over its lookback. The author presents this contraction as a volatility signal and says the method can be used with different lengths. The document explains the calculations and visual interpretation, but does not define entries, exits, or position sizing, and provides no backtest or evidence that a contraction predicts a breakout or profitable trade. The plotted conditions are therefore charting cues that require independent evaluation.

Key ideas

• The envelope starts with an EMA basis and an EMA-smoothed absolute deviation from price.
• Smoothed upper and lower curves define the range used by the indicator.
• A rising lower curve combined with a falling upper curve marks a converging wedge.
• A declining distance between the curves highlights periods of range contraction.
• The document offers no tested trading rules or performance evidence for the signal.

Tags

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