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Moving Average Envelopes

In a nutshell, a moving average envelope is a technical analysis indicator that shows lines above and below a moving average. The ultimate goal of using moving averages is to identify trend changes in the market. Though moving averages are a useful tool as part of the technical analysis tools set, might also provide false signals.

When it comes to moving averages, a simple buy signal occurs when prices close above the moving average and a sell signal occurs when the price closes below the moving average. For example, if EUR/USD is moving upward and closes above a moving average, signaling an entry to go long.

How do you know that this trend is happening in real and will keep continuing? The answer is, you don’t.

If you assume that the trend will go long, there are two options: Either to go long based on the original entry signal  or wait for more confirmation that the trend is legit. This is where moving averages envelopes (MAE) can help.

Basically, a moving average envelope consists of a moving average and two other lines. While one line is above the moving average, the other line is below it. Together, these two lines form an upper and lower envelope. It’s called an envelope as these two lines wrap the original moving average line.

Moving averages envelopes are used to confirm trend, as well as to identify overbought and oversold conditions.

Risk Warning

 This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. Trust Capital TC Ltd does not take into account your personal investment objectives or financial situation. Trust Capital TC Ltd makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of Trust Capital TC Ltd, a third party or otherwise.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.92% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trust Capital TC does not offer Contracts for Difference to residents of certain jurisdictions including the USA, Iran, and North Korea. Please consider our “Risk Disclosure“.

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