Moving Average Envelope (ENV) : Python Matplotlib Finance and Math Tutorials

Key Takeaways

well everybody welcome to another Python mathematics and Finance tutorial video this video we're gonna be talking about the moving average envelope this one's pretty simple and simple enough to where I can condense it all into one video so first let me just show you guys this envelope it looks a lot like maybe these Keltner channels or Bollinger Bands so let's take a look at let's look at Toyota so here they are for Toyota it's the actually being plotted here right on price and so the idea of these is to you know encapsulate price and you can find when there's been you know like a breakout like for example we zoom in to maybe this area here we can see where price has broken out here and that's obviously a very bullish indicator but continues breaking out still bullish and then finally here it breaks out now we've got a bearish signal and again bullish bowl as well as bearish right so these are actually pretty simple what you're doing is you're just taking a simple moving average and then you're multiplying that simple moving or adding you know maybe a quarter or even like a quarter of a quarter times that simple moving average you've just Plus that and minus that to get the direction right so that also it will adjust itself by volatility right so like here you can see it's you know not too volatile as far as you know comparison to here is how much price it's been swinging around by right so the gap is much smaller here than it is here it gets much wider so so will automatically adjust and it's just like I said it's like really really simple and you can see it really comes down here it gets really thin there and then it comes back up again but anyway very simple because it's just a simple moving average and then you add like a multiple of that simple moving average to the simple moving average and boom you've got yourself some channels so yeah so let's go ahead and get into the actual programming of this to do that let's go to syntax calm the sample code is in there's a link for it in the description that should take you to here just come up to the script and copy and paste everything scrip and then go to an empty Python script and paste it in so I'll bring it over here let me just fit it to scream [Music] copy-paste and normally if you have been following along everything gets done right in here but for this video we're not going to do that because we want to plot it on that on the price right not on that bottom axes so we're going to come all the way up to basically here and just hit enter like a bunch make some space and then we're going to go ahead and comment out these two lines and because we've done that the legend is going to like scream at us so do a control F and in decibel box type in legend and you'll find this little block of code right here comment it all out so it will go one two three and one two three so now we don't have to worry about those prices being shown all that's going to come up now on that middle axes is the candlestick next what we want to do now is do this moving average envelope so tab over a couple times and we'll define env for envelope and this is going to have two parameters that we're gonna pass through prices and a time frame so whatever envelope time frame we want it's gonna have it's gonna generate three lines right so we need an upper line equals empty lower line equals empty and then we want that middle line and that'll be equal empty as well for now then we're gonna be using simple moving averages so I'm gonna say SMAS equals moving average whoops prices time frame now moving average we've already covered that in a previous video so if you want to know more about how calculated moving average check out that video next get rid of that slide next we want to say for each SMA in SMAS what do we want to do well we're gonna say upper lines so ul s equals each SMA plus and then in here you can put whatever value you want 0.05 seems to work pretty decent so we'll say 0.05 times each SMA so as you can imagine that just adds a little bit to the ESM right and that'll kind of help us create these like gaps right plus while it does that it's also going to react to that simple moving average depending on how much how fast it's changing so that'll make the gap either get wider or thinner and which is also kind of an indication of volatility change anyway next thing we want to do is lower lines equals and this is going to be the same thing only a minus so I'm just going to copy and paste this line and instead of adding you're subtracting and then middle lines is just equal to each SMA next we're going to say upper line dot append upper lines lower line dot append lines and middle line up and little eyes finally at the end once we've exhausted this for loop what do we want to do we want to return upper line lower line middle line so that's that now what we want to do is calm down Twitter cool so now what we want to say is upper line lower Lyme middle line equals env right EMP and then prices time frame so we're gonna use closed price and a time frame of ten so now all we really need to do is a x1 dot plot and we want to do date - SP : that's just our starting point if you wanna know more about that check out the charting stocks in python tutorial series they upper line don't forget your - SP : oops - SP : and in fact I'm just gonna copy and paste X well in your mind we're gonna copy and paste this whole function and we want that line to be white now I'm going to copy and paste this whole thing paste that twice bam bam and now upper line cool lower line and then middle line and that's really it we should be able to plot this now I believe looks good let's do it here we go so stock to Apple I'm trying of a stock we haven't actually plotted yet it's like a bajillion stocks and I just like you never think of it recently let's do let's do it big for Big Lots all right so obviously the lower indicator is empty because that was kind of like the way we left it so we could do other videos but this one as we can see we definitely definitely got it this one is obviously a pretty volatile stock it's got a lot of breaking out both on the top and the bottom going on here quite the swinging stock let me look at that that's pretty interesting stock if you could time those swings lots of money made there anyway so that's Big Lots as you can see that it did indeed work out for us I've got another one let's do Google and again so here's Google fit it over here a lot of breaking out for Google as well so if you happen to if you don't want to see like so much like cuz that's that's really where the signal comes from is where you have either a breakout on the bottom or a breakout you know on the top for bearish and bullish breaking out right so if you don't that you can change that obviously about coming over to your formula and say you wanted to see like you only wanted like a little like a solid breakout and that was the only thing you'd be interested in you it would raise this number okay so let's say 0.07 now now let's look at Google again and see if we have just as many or Big Lots probably another good one to look at anyway you have a lot less breaking out going on so if you wanted to create like an algorithmic trading system on this that said hey buy you would get a lot less buy signals but they'd probably be a little more solid when it came to the buying signal itself so like a good example of like the trading system that people would build off of this would be like right here right so every time it breaks up out you buy into it and then as soon as it comes back in you would sell out of it and then again you would have done the same thing here bought in and then you'd sold out up here and you know you would have made a decent amount of profit there the real question is did you make more profit on that time frame rather than just buying in here and holding all the way till today right and doing nothing so and probably not you probably made more money holding so anyway those are your moving average envelopes pretty interesting very basic and very easy to implement into any basically any trading system and also as far as like breakouts are concerned and buying you know you could just strictly calculate that upper line and every time price exceeded that upper line that would be a buy signal right and then you would hold that until price got back below that lower line sell signal and you're good to go so anyways that's going to conclude the moving average envelope in fact that kind of makes me want to save that idea for later and maybe we'll will back test the system of buying at you can use machine learning to figure out the best little line there or the best number to multiply by anyway back test that idea see how see if that actually works and see if that does actually beat buying and holding anyway ideas for the future hopefully you guys enjoyed hopefully you learned something new as always thanks for watching thanks for all the support and subscriptions until the next video