Moving Average Envelope Strategy

Explanation & Rationale

The Moving Average Envelope strategy uses a percentage-based envelope around a simple moving average (SMA) to define overbought and oversold conditions. A buy signal occurs when the price touches the lower envelope band and reverses upward, while a sell signal is triggered when the price touches the upper band and reverses downward. This approach helps identify potential entry and exit points based on price deviations from a central moving average, providing a dynamic method for trading within defined boundaries.

Code

'''
Moving Average Envelope Strategy.

Buy when the price touches the lower envelope band and moves up.
Short when the price touches the upper envelope band and moves down.
This strategy uses a percentage-based envelope around a moving average.
Learn more @ docs.ubacktest.com/examples/moving-averages/maenvelope
'''

import pandas as pd
import numpy as np

def calculate_moving_average_envelope(series, window=20, envelope_pct=2.0):
    sma = series.rolling(window=window).mean()
    upper_band = sma * (1 + envelope_pct / 100)
    lower_band = sma * (1 - envelope_pct / 100)
    return sma, upper_band, lower_band

def strategy(data):
    data['SMA'], data['Upper_Band'], data['Lower_Band'] = calculate_moving_average_envelope(data['close'])

    # Initialize 'signal' column
    data['signal'] = np.nan
    data.loc[data['close'] <= data['Lower_Band'], 'signal'] = 1  # Buy
    data.loc[data['close'] >= data['Upper_Band'], 'signal'] = -1  # Short

    return data