The moving average envelope chart study is a derivative of the moving average study. It uses only one moving average, which you specify. You also determine the price band. The price band has two lines which are an equal percentage distance from the exponential, smoothed, or normal moving average. The moving average line is not visible. While several different trading rules are available, the most simple approach uses the price band as an entry and exit point. When price penetrates the upper price band, you initiate a long position or buy. If you have an existing short position, you close out shorts and go long. Conversely, when prices penetrate the lower price band, you close out long positions and go short. BM is charted with
- Percentage bands at 7% around a 30 day exponential moving average.
2. Exit [X] the long position when price closes back below the moving average.
3. Go long again [L2] when price turns up near the lower band.
4. Go short [S] when price turns down near the upper band.
5. Continue with this pattern until price begins to trend (indicated by the breakout from the trading range) then switch to the signals below.