Moving Average Envelope

Two lines that are based on a Simple Moving average, but rather drawn in a slight distance away form it, creating an envelope shape - or a price range.

Why should I use it?

Technical analysis constantly tries to spot overbought and oversold price levels
Moving Average Envelope can help you decide when the price of the market is probably too high (overbought), as it is trading at the upper line of the envelope, or when the price might be too low (oversold) as it is trading at the lower line of the envelope.
When the price is too high it might be a good time to sell, and when the price is too low, it might be a good time to buy.
How does it look like?
The moving average envelope indicator is built out of two lines, which are both based on one moving average, but each line is lower or higher than the SMA by a percentage to your choice.
Imagine a chart with a simple moving average on it. Now draw one line exactly 3% above the moving average, and draw another line exactly 3% under the moving average. Now take away the moving average in the center, and you are left with the Moving Average Envelope indicator (with a distance setting of 3%).

How does it work?

First you chose how wide you want the envelope to be. The eToro platform default is 5%, this means that the upper line of the envelope is 5% higher than the moving average, and the lower line of the envelope is 5% lower than the moving average.
This setting is good for the 24-hour charts. However, for shorter time periods, it is better to choose a lower percentage for distance.
The market will trade most of the time in between the upper line and the lower line.
When the market is finally crossing the upper line, it might indicate the price is too high (overbought) and therefore a sell opportunity is in place.
Conversely, when the market is finally crossing below the lower line of the envelope, it might indicate the price is trading too low (oversold), and therefore a buy opportunity is in place.

Example

Below is an hourly chart of GBPJPY, the Moving average envelope is set for 2% shifts, that is the upper red line is 2% higher than the moving average, and the lower red line is 2% lower than the moving average.
Notice how the price keeps moving inside the frame of the two red lines, providing buy and sell signals when reaching the boundaries of the envelope.