What are Moving Average Envelopes?

A moving average envelope consists of a moving average AND two other lines.

One line is ABOVE the moving average and the other line is BELOW the moving average.

Together, these two lines form an upper and lower envelope.

It’s called an envelope (noun) because these two lines envelope (verb) the original moving average line.

Moving averages envelopes are used to:

• Confirm trend
• Identify overbought and oversold conditions

How to Calculate Moving Average Envelopes

How to calculate a moving average envelope is pretty simple.

First, decide whether you want to use a simple moving average (SMA) or an exponential moving average (EMA).

Remember, EMAs have less lag because they put more weight on recent prices.

Then, select the number of time periods you wish to apply.

Lastly, set the percentage value you’d like to use for the envelopes.

For example, a 10-day moving average with a 1% envelope would show the following lines:

Upper Envelope: 10-day SMA + (10-day SMA x .01)
10-day SMA
Lower Envelope: 10-day SMA - (10-day SMA x .01)

The chart below shows EUR/USD with a 10-day SMA and 1% envelopes.

Notice how the envelopes (blue lines) move parallel with the 10-day SMA (orange line).

They remain a constant 1% above and below the moving average (orange line).

Learn to Trade Forex

If you’d like to earn extra income trading on the Forex market, consider learning how to currency trade with Forex Smart Trade.   With their super-accurate proprietary trading tools and best-in-the-business, personalized one-on-one training, you’ll be successful.  Check out the Forex Smart Trade webinar.  It shows one of their trader’s trading and how easy, intuitive, and accurate the tools are.  Or try the Forex Smart Trade 14-day introductory trial for just TEN dollars.