GlossaryIntermediate
Moving Average Envelopes
Percentage-based bands plotted above and below a moving average, used to flag when price has moved unusually far from its trend.
Moving average envelopes are bands plotted a fixed percentage above and below a chosen moving average, creating an upper and lower boundary around the trend line itself.
Price reaching or crossing one of the envelope bands is commonly watched as a sign it has moved unusually far from its underlying trend, which some traders treat as a potential overbought or oversold condition relative to that trend. See Kaavon's dedicated Moving Average Envelopes article for how the percentage width is typically chosen.
Examples
- Price touching the upper moving average envelope band is commonly discussed as a sign it has stretched unusually far above its recent trend.
- Unlike Bollinger Bands, which widen and narrow based on volatility, moving average envelopes use a fixed percentage width that doesn't adjust automatically.