Moving Average Envelope (MAE)


Moving Average Envelopes are lines plotted at a certain percentage above and below a moving average of price. The default setting is a 20 period SMA with envelopes set at 5%. They are also known as trading bands, moving average bands, price envelopes, and percentage envelopes.

Chart 1: Moving Average Envelope (MAE)

Reminiscent of Bollinger Bands®, the logic behind envelopes states that overzealous buyers and sellers push prices to extremes (i.e. the upper and lower bands), at which point the prices often stabilize by moving to more realistic levels. When the security's price touches the upper band and turns downward, the security might be at an overbought level. Conversely, when the security's price touches the lower band and turns upward, the security might be at an oversold level.

Chart 2: Moving Average Envelope (MAE)

Center Band = n period SMA of the Source

Upper Band = Center Band x (1 + Envelope Percentage)

Lower Band = Center Band x (1 – Envelope Percentage)

Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.