Let’s examine how to confirm trend direction with moving average envelopes.
The foundation of moving average envelopes (MAE) is the moving average.
They can use the moving average envelopes as a trend-following indicator.
The direction of the moving average determines the direction of the envelopes.
When the envelopes are moving higher, the price is in an uptrend.
If the envelopes are moving lower, the price is in a downtrend.
When the envelopes are moving sideways, the price is neither in an uptrend nor a downtrend.
The trend is neutral, and the price is considered directionless.
You should pay attention when the price moves above or below the envelopes.
Trends often begin with a strong move.
If the price surges above the upper envelope, this is bullish.
When the price plunges below the lower envelope, this is bearish.
If the price closes above the UPPER envelope, buy.
If the price closes below the LOWER envelope, sell.
In the chart below, notice how the 20-day simple moving average (orange line) and the upper and lower envelopes (blue lines) are moving higher.
See how the price managed to close above the moving average?
To confirm that the trend has changed from bearish to bullish, you could wait until the price has also closed above the upper envelope.
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