ChAPter 12 envelopes and Methods of Price Containment
t
he art and science of price containment is primarily about the identification
of significant price reaction levels. It helps to identify levels of potential price
reversals and continuations and may be applied to practically any market. In this
chapter, we shall be discussing the five basic forms of price containment and see
them in action in various stocks and markets.12.1 Containing Price Action and Volatility about a Central Value
An envelope is an overlay indicator that comprises an upper and lower band. It
is used primarily as a means of containing price action. The main areas of focus
when dealing with bands include the:■ (^) Reaction of price at the central value and bands
■ (^) Direction of the central value bands
le a r n i n g ob j eCt iVe s
After studying this chapter, you should be able to:
■ Understand the importance of price containment as a technical tool for forecasting
price reversal as well as continuation
■ Apply the concepts of price containment to various stocks and markets
■ Identify and differentiate between the different forms of price containment and under-
stand their individual strengths and weaknesses
■ Identify any bearish or bullish confluence that will add to the weight of the evidence
about potential future price behavior
■ Understand how to tune envelopes and bands to important dominant cycles