I use envelopes as a starting point but definitely not for trading signals. One of the trading systems I use includes volatility-based envelopes (not constant width) that use centered WMAs and regressions to extrapolate through the current bar. I usually use two envelopes with a harmonic relationship of 4 to 1 based on visually evident lows. It sounds a lot fancier than it is. I find the visual context is sometimes helpful, but other times a little misleading. When a big jolt occurs (first week in Feb), daily envelopes of this type will be greatly distorted. Given the recent increase in volatility, I have been using envelopes based on 30m or 60m bars because the increased number of data points act as a volatility shock absorber. I also find this approach greatly reduces the end point effect (repainting). I will post a chart later.
In theory, envelopes are the perfect trading tool because they identify all the market inefficiencies traders attempt to exploit (undervaluation, up momentum, overvaluation, down momentum, and back to undervaluation) all in a multi-time frame context. In practice, it ain’t that easy, mainly because they don’t help you with action signals on the right edge of the chart. They look great in the rear view mirror though!
Look at some of the triad charts Alain posted a while back showing the intersection of multiple DMAs (maximum point of momentum) then imagine 2 standard deviation envelopes around the price action. If you strip everything down to the very basics, that’s all there really is to it.