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in this video we're going to talk about the moving average envelope better known as the mae and all it is is a three-line technical analysis tool uses a moving average and an upper and a lower band and those bands they sit a certain percentage away from the moving average that you're using now when you think about the word envelope you would think that the price should be surrounded by the upper and lower bands and in the stock chart of moderna i'm using a three percent band and a 20 ema you can see that's not the case and we're going to talk about why that's the case later on so what does the envelope tell you well people use it for three main uses to confirm the trend direction showing an overbought condition with prices at the upper band and at the lower band looking at an oversold condition every trader has got to define their own rules around that information to enter the trade to manage the trade and to exit a trade and the key thing to remember is these envelopes do not adjust to volatility we're talking about the settings with any technical tool like this the common question is what's the best setting and the fact is and regards to this indicator or any other indicator there is no best setting there's no universal best setting period a lot of people just use the default one as a starting point and the standard settings for these envelopes is a 20 period moving average and bands set to 5 you can use an ema or you can use an sma for the average when you use an ema it just allows the indicator to weigh the more recent data heavily than it does the past data and be honest you know the default may be fine for some instruments okay but it's not going to serve those that have volatility that's pretty high and that moderna chart that shows price heavily into overbought territory for over 32 bars so you're gonna have to experiment with different settings and even different time periods so the bands have some interaction with the movement of price this is an eight percent band okay there's a lot of different combinations you can try and to have some sort of consistent way to adjust the settings just use fibonacci series of numbers you know after the eight percent maybe use a 13 for example 21 so you can see here with the eight percent the 20 period ema it actually interacts better with the ebb and flow price of moderna except when that ninety percent run up in price happens after that gap up so one of the biggest uses of any moving average is trend direction and using the envelopes for that's no different because now we're going to use the slope of the envelope and that's going to give you an objective determination of trend so...