Moving Averages % Channel

Type

Trend Indicator – Moving Averages – Overbought/Oversold

How does it work?

Moving Averages % Channels (or Price envelopes) are plotted at a set percentage above and below a moving average. They are used to indicate overbought and oversold levels.

The length of the moving average should be varied according to the cycle that you are trading. The Percentage should be set so that about 90% of price activity is contained within the bands. Adjust the bandwidth if volatility increases over time.

Trading Signals

1. When price swings back and forth across the moving average it is ranging

2. When price stays above the moving average it is in an up-trend3. When price stays below the moving average it is trending down 4. Bearish when price turns down near the upper band

5. Bullish when price turns up near the lower band

6. You might want to close any short position if price turns up near the lower band or crosses back above the moving average (from below)

7. You might want to close any long position if price turns down near the upper band or if it crosses back below the moving average (from above)

Settings

Sharechart Default: 5 period, 5% upper band & 5% lower band

Example

The chart below of Deutsche Diversified Trust shows share price fluctuating within the Moving Averages % Channel. When share price was in the lower band the share price remained in a clear downtrend. When share price was in the upper band the share price remained in a clear uptrend. There was a false break below the moving average line for 5 days.

The setting for the Moving Average % Channel for the graph above was 20, shown below. It can be modified: go to Settings > Indicators > Moving Average % Channel.