Moving Average Envelopes


Published on

Moving Average Envelopes serve as an indicator of overbought or oversold conditions, visual representations of price trend, and an indicator of price breakouts. View the presentation to know more about Moving Average Envelopes.

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • Moving average envelopes are technicalindicators for <b><a href="" title="Stock Price">share price</a></b>trend or breakout indications learn to interpret moving average envelopes with Kotak Securities - India’s largest <b><a href="" title="Share Broker">stock brokerage firm</a></b>.
  • Moving Average Envelopes

    1. 1. Moving Average Envelopes
    2. 2. IntroductionA Moving Average Envelope consists of a moving average plus and minus acertain user defined percentage deviation. Moving Average Envelopes serve asan indicator of overbought or oversold conditions, visual representations ofprice trend, and an indicator of price breakouts.
    3. 3. The inputs of the Moving Average Envelopes are as follows:1. Moving Average :Moving Averages smooth the price data to form a trend following indicator.They do not predict price direction, but rather define the current direction witha lag. Moving Averages lag because they are based on past prices. Despite thislag, moving averages help smooth price action and filter out the noise. The twomost popular types of moving averages are the Simple Moving Average(SMA)and the Exponential Moving Average (EMA). These moving averages canbe used to identify the direction of the trend or define potential support andresistance levels. A simple moving average of both the highs and the lows canalso be used. (generally 20-period is used, but it varies among technicalanalysts; also, a person could use only the close when calculating the movingaverage, rather than two)
    4. 4. 2. Upper Band:The moving average of the highs plus a user defined percentage increase(usually between 1 & 10%).3. Lower Band:The moving average of the lows minus a user defined percentage(again, usually between 1 & 10%).
    5. 5. Interpreting Moving Average Envelopes In the chart above, the price is not trending. During non-trending phases of markets, Moving Average Envelopes make great overbought and oversold indicators. Buy when the stock price penetrates the lower envelope and closes back inside the envelope. Sell when the stock price penetrates the upper envelope and then closes back down inside the envelope.
    6. 6. Price Breakout IndicatorStock prices breakout when they are done consolidating in a range. Whenprices break above the upper envelope, then buy.When prices break below the lower envelope, then sell. An illustration ofan upward price breakout is shown above on the chart. On the rightside, the script gapped up above the 2% price band.
    7. 7. Price Trend IndicatorA new trend in price is usually indicated by a price breakout as outlinedabove with a continued price close above the upper band, for an upwardprice trend. A continued price close below the lower band would indicate anew downward price trend.In the chart, after the price breakout, the closing price continued to closeabove the upper band; this is a good example of how a price trend begins.Soon after, the price will fall back into the Moving Average Envelopes, butthe Moving Average Envelopes will be heading in a positive direction easilyidentifying the trend as up.
    8. 8. Thank You! Read More And give us your Feedback ORIf you have any questions click on any of these -
    9. 9. • Registered office: Kotak Securities Limited, 1st Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400021. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230/INE 011207251, OTC INB 200808136, MCXSX INE 260808130.• Disclaimer: Investments in securities are subject to market risks, please read the SEBI prescribed Combined RDD prior to investing.• * Awarded Best Brokerage Firm in India by AsiaMoney in 2006, 2007, 2008 and 2009