A fixed-percentage band wrapped around a moving average. Older than Bollinger Bands, simpler than Keltner — the most primitive of all channel indicators, and the one that refuses to bend with the market's mood.
The Moving Average Envelope is one of the oldest channel-style indicators in technical analysis, predating both Bollinger Bands and Keltner Channels. The design is austerely simple: take a moving average, draw a line a fixed percentage above it, draw another the same fixed percentage below, and that is the envelope.
The centerline is usually an SMA(20) or SMA(25). The upper band is the centerline multiplied by (1 + k); the lower by (1 − k). The constant k is a percentage chosen up front — typically 2 to 3% for equities, much smaller for FX (often around 0.5%), and tuned to whatever the underlying instrument's typical movement looks like.
It looks superficially like Bollinger Bands. The decisive difference is that the envelope does not breathe with volatility. Bollinger builds its bands from standard deviation, so they widen when the market gets noisy and contract when it goes quiet. Keltner does something similar with ATR. The envelope refuses both adjustments. The bands stay exactly the same percentage away from the mean, whether the market is roaring or sleeping.
This non-adaptive behaviour is the envelope's weakness — and, as we'll see, also its discipline.
Members Only
Full access is reserved for members of the library.