Moving Average Envelope (MAE)
Moving Average Envelope is an indicator which shows a range of the prices discrepancy from a moving average. A moving average, which forms the basis of this indicator, can be a simple, exponential, linear weighted or another moving average.
Contents
Formula
The indicator consists of two lines.
The upper line is calculated as a moving average of N periods shifted by a percentage value above the moving average:
<math> \operatorname{Upper Line}_{i} = \operatorname{MVA}(price, N)_{i}\times(1 + \dfrac{upper} {100}) </math>
The lower line is calculated as a moving average of N periods shifted by a percentage value below the moving average:
<math> \operatorname{Lower Line}_{i} = \operatorname{MVA}(price, N)_{i}\times(1 - \dfrac{lower} {100}) </math>
where:
<math> \operatorname{upper} </math> is a user defined percentage value for the upper line.
<math> \operatorname{lower} </math> is a user defined percentage value for the lower line.
<math> \operatorname{MVA} </math> is a moving average. This can be SMA, EMA, LWMA, and so on.
<math> \operatorname{N} </math> is the number of periods for the moving average.
Note
The Marketscope standard indicator uses the SMA method for calculation of the moving average. However, you can download the customizable version of the indicator with the ability to choose the method from the fxcodebase site.
Usage
MAE for Trend Identification
When the market price breaks through the upper line of MAE, this may indicate the beginning of an uptrend.
When the market price breaks through the lower line of MAE, this may indicate the beginning of a downtrend.
MAE for Support/Resistance Levels
The indicator can be used for indicating support and resistance levels. In this case the upper line is taken as a resistance level and the lower line is taken as a support level.
MAE for Overbought/Oversold Levels
The indicator can be used to identify overbought and oversold levels.
If in a strong uptrend, the price moves above the upper line and continues moving above this line, this can be interpreted as an overbought market.
Similarly, if in a strong downtrend, the price moves below the lower line and continues moving below the line, this can be interpreted as an oversold market.
See Also
Indicators
- Simple Moving Average (MVA, SMA)
- Exponential Moving Average (EMA)
- Linear Weighted Moving Average (LWMA)
Articles
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