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Bearish meeting lines is a bearish market reversal candlestick pattern indicating the beginning of a downtrend after an uptrend. It is a two candlestick pattern formed of a bullish (colorless or white) candlestick and a bearish (colored or dark) candlestick. The pattern resembles Bearish Dark Cloud Cover pattern, but here the second candlestick does not enter into first day candlestick’s real-body, and also the pattern is less reliable than dark cloud cover.


The requirements of bearish meeting lines formation include,

• The pattern should form at the end of a significant uptrend.
• There should be a long bullish candlestick on first day.
• There should be a long bearish candlestick (it’s often shorter than first day candlestick) which opens above a significant gap and closes at or around the closing price of first day candlestick.

Usually the opening of price above a significant gap after a long bullish movement tempts traders to close their long positions and take their profit. The resulting bearish activity encourages bears and the market closes at or near the closing price of the previous day.

Bearish meeting lines is a moderately reliable pattern. Reliability increases with the prior uptrend and with increase in trading volume on second day. The pattern is less reliable when formed in a sidewise moving market. Confirmation of trend-reversal in required, which can be a lower close, a bearish candlestick or a gap down opening on third trading day.

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Linear weighted moving average or LWMA is a moving average tool which assigns more value to current prices and thus more responsive to latest price trends. It is less popular than simple moving average or SMA and exponential moving average or EMA. Like EMA, LWMA was also created to overcome the lagging associated with simple moving average.

Like exponential moving average, linear weighted moving average more weight to latest data, but unlike EMA this value is in linear progression (e.g.: 1, 2, 3…). Fore example in a 5-day LWMA, first day closing price is multiplied by 1, second day by 2… and latest day (5th day) by 5. Then the results are added and divided by the total weighting values (1+2+3+4+5=15). Thus the current prices get more weight at the expense of older prices. LWMA better suits as long-term indicator as the significance of weighting increases with time frame.

Linear weighted moving average is used just like EMA, most traders use LWMA together with simple moving average. Buy and sell signals can be generated at moving average breakouts and crosses. Trends are confirmed when SMA and LWMA moves in same direction.

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In addition to just outperforming the benchmark indexes, actively managed Exchange Traded Funds (ETFs) offer some other opportunities to traders, both individual and institutional. These opportunities emerge from the fact that ETFs have high transparency and have to disclose their holdings on a daily basis and they can be intraday traded.

1. Copying and Front running – Actively managed ETFs reveal ETF holdings with the help of talented money managers. Any investor who closely follows the ETF can thus use the changing ETF composition to managing his own portfolio. Likely institutional traders and other big players of the market can use this info to their own advantage; this strategy is called front running.
2. Arbitrage opportunity – this is for institutional level traders. Whenever there is a variation in relationship of ETF price and underlying asset price, there is a chance of arbitrage. This strategy is based on the fact that ETF shares can be sold in two ways, one on open market and the other to the ETF firm in exchange for the underlying asset. For selling back to the ETF firm there should be a large block of ETF shares called creation units.
3. Intraday trading opportunities – Actively managed ETFs usually involves trading throughout the day. This can create intraday trends and price movements, which indirectly can help short-term traders like day traders and scalpers.

Many ETF firms are seriously concerned about this increased transparency and are making trades one in a day or week. Also the portfolio holdings are disclosed after the market close. This can greatly reduce front running.

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The Week Ahead: Only the Nasdaq index managed a seventh straight up week of the three major indices as bearish divergences start to develop in the stock market. Reports to watch are the S&P Case-Shiller Home Price Index and consumer confidence on Tuesday. The FOMC also begins its two day meeting on interest rate policy as well. The FOMC will deliver its policy statement on Wednesday when Q1 preliminary GDP for the economy is released. Jobless claims and personal income and spending numbers are released Thursday. The ISM Manufacturing report is due Friday.

Stocks to Watch: Stanley Works (SWK) stock lifted strongly after beating estimates for its Q1 earnings and upbeat statements from the company regarding its future. Eastman Chemical (EMN), despite substantially lower earnings from a year ago, beat estimates by .11 and the stock soared to its 200 day moving average. DeVry (DV) a came in .17 better than its Q3 from a year ago, but the stock faltered on this news as the stock has been weak recently. NBTY (NTY) reported Q2 numbers .67 lighter than last year but beat estimates as its stock moved past its 200 day moving average.

Special Note: Markets will prepare for the next government concoction known as the "Bank Stress Test", the results of which will be publicly released on May 4. This will be a pass or fail result based on a set of preconditions determined by the Treasury. Basically the whole process is to try and convince the markets of the soundness of the financial system, but after the recent FASB accounting rule changes for banks, will investors be convinced at all in a positive way?

Commentary Provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Coverdell Education Savings Account (ESA), formerly known as Education IRA, is a trust account created for paying qualified educational expenses to the account beneficiaries. These accounts can be opened with banks, brokerage firms, with mutual fund firms and other financial institutions. The funds in these accounts are invested in financial instruments like stocks, bonds, funds, etc.; as chosen by the person controlling the account.

The major advantage of a Coverdell ESA is its tax benefits. Earnings in the accounts are tax free if are withdrawn for qualified expenses. These qualified expenses include tuition fees and other fees, cost of books, uniforms, supplies, transportation and equipments, cost of room and board. Expenses for certain elementary and secondary educational expenses are also tax-free.

Any number of ESAs can be opened for a single beneficiary, but there is an upper contribution limit of $2000 per year. If the total contribution exceeds this limit, then tax penalties are applicable. Similarly there is an upper income limit for contributing individuals which is $110,000 for single persons and $220,000 for joint contributors. Coverdell ESAs can be opened for beneficiaries under age 18 and the amount in the account should be withdrawn fully before the beneficiary turn 30; if not then a 10 percent penalty is applicable. However the account can be transferred to a relative, including in-laws, cousins and step-relatives.

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Bullish kicking is a rare but highly reliable bullish candlestick pattern which indicates the beginning of a new uptrend. The pattern consists of two opposite candlesticks – one bearish (black or colored) candlestick and one bullish (white or colorless) candlestick. In bullish kicking pattern, both candlesticks are marubozu (having no or very small upper and lower shadows). This pattern has a strong resemblance to bullish separating lines pattern, the only difference is that it has a gap between the two candlesticks.



Requirements of bullish kicking candlestick pattern include,

• Prior/prevailing trend is not important with this pattern.
• On first day, there should be a bearish marubozu candlestick; closing at its low.
• On second day there should be a bullish marubozu candlestick, which open above an upside gap and closes at its high.

The opening of second day candlestick way above the first day candlestick and the continuous bullish activity of the day indicated by close at the top sends a strong signal that the market is bullish. More over, the price of second day never enters the first days range and the new gap formed act like a new support level indicating that it is difficult to move the prices down.

Bearish kicking candlestick pattern is considered as a highly reliable one. The reliability increases with increase trading volume (especially on second day), increase in length of candlestick bodies, and increase in gap between candlesticks. Confirmation of trend change is still suggested which can be an increase in trading volume, a new upper gap (occurs most time), a bullish candlestick or an upper close on next trading day.

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Moving Average Convergence/Divergence or MACD are simple yet effective indicators for generating buy and sell signals and to understand trend changes. MACD simply compares a long-term and a short-term exponential moving average to identify existing market trend.

MACD generates bullish signals when one of the following scenarios is satisfied.

1. Bullish Crossover – occurs when MACD crosses the trigger line (9-day EMA of MACD) from below. Generally when MACD is above trigger line, market is considered bullish and when MACD is below trigger line, market is considered bearish.
2. Bullish Centerline Crossover – occurs when MACD crosses its center line (zero) from below. This shows that the momentum is changed from bearish to bullish.
3. Positive divergence – occurs when MACD makes new highs but the stock fail to do so or when security makes new lows but MACD makes higher lows. This shows that the present trend is losing momentum and a trend change is possible. Divergences are least common but most reliable signals.

MACD generates bearish signals when one of the following scenarios is satisfied.

1. Bearish Crossover – occurs when MACD crosses the trigger line from above.
2. Bearish Centerline Crossover – occurs when MACD crosses its center line from above. Indicates change of momentum from bullish to bearish.
3. Negative divergence – occurs when MACD makes new lows but the security fail to do so or when security makes new highs but MACD makes lower highs.

In addition to these signals rapid rise or fall in MACD can also used to generate signals. Rapid rise in MACD indicates overbought conditions and possible correction; and rapid fall in MACD indicates oversold conditions demanding correction.

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Moving Average Convergence/Divergence or MACD is one of the most widely used indicators by all kinds of traders trading all kinds of instruments. MACD is a lagging indicator which can be used to analyze the strength of the trend, to find overbought and oversold conditions and to generate buy and sell signals.

Moving Average Convergence / Divergence is created by subtracting a long-term exponential moving average or EMA (typical 26-day) from a short-term EMA (typical 12-day) of a security. Know more about Exponential Moving Average or EMA. Using shorter term EMAs will produce a responsive MACD ideal for short-term traders and using longer term EMAs will produce less-responsive MACD. MACD oscillates above and below zero with no upper or lower limits. When MACD is above zero and is raising bullish trend is identified and when MACD is below zero bearish trend is identified. Usually a 9-day EMA of MACD is also plotted with 12-day MACD, which act as a trigger line for generating buy and sell signals.

Moving Average Convergence/Divergence is considered as a very good trading indicator because it combines momentum and trend. Being a lagging indicator it often generates reliable results, it is simple, they indicate trend weakening and possible trend reversals and they can be applied to any charts. The using of EMA instead of simple moving average also reduced the lagging. But MACD does not have any upper or lower limits, is less effective in finding overbought and oversold conditions and is often less effective for long-term trading.

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The Week Ahead: The market managed its 6th straight up week, the largest since May of 2007 as CitiGroup and General Electric came in with better than expected bottom lines. Can it continue? The March leading economic indicators are due out on Monday while the oil and gas inventory numbers come out Wednesday. Jobless claims and existing home sales are reported Thursday, but durable goods orders and new home sales will wait until a Friday release.

Stocks to Watch: McGraw Hill Cos. (MHP) was upgraded by J.P. Morgan on the bright prospects of its Standard & Poor's unit. Another bank that beat estimates was BB&T (BBT), but like most stocks it's near resistance in the mid 20's. Tempur-Pedic (TPX) showed a 50% increase in earnings as revenues fell by 28%, but beware of the nearly tripling in price from the March low. Tyco Electronics (TEL) is selling its wireless systems unit to Harris Corporation for $675 million as the stock ballooned on this news.

Special Note: It's probably more than a coincidence that banks with loads of toxic assets on their balance sheets are suddenly reporting earnings right after the Financial Accounting Standards Board (FASB) changed the way banks can price these assets from mark-to-market to mark-to-model right before Q1 earnings releases. As the saying goes "buyer beware". Can these companies maintain profitability despite a financial collapse and broadening economic slowdown globally?

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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There are many types of market analysts in stock markets analyzing, reviewing and reporting about companies, their fundamentals and growth prospective, future performances and more. We can classify these analysts into three broad classes as sell-side, buy-side and independent market analysts. Remember, we are not talking about individual analysts who provide daily or weekly market commentary/prediction; we are talking about big and small analysis firms.

1. Sell-side analysts – are analysts who are affiliated to a brokerage firm. They conduct vast primary research of companies’ fundamentals, management, sector and industry and competition to create detailed reports. The reports are sold to individual and institutional clients of the brokerage firm. Sell-side analysis is a cost and time consuming process but offer in-depth reports.
2. Buy-side analysts – are analysts who are affiliated to a fund. They conduct research with the goal for screening stocks to buy and sell. They cover more stocks than sell-side analysts but create brief reports and are distributed exclusively to the fund’s managers. Many buy-side analysts get market info from sell-side analysts.
3. Independent analysts or Indies– are analysts who are not affiliated to a fund or broker. They work independently for funds, brokers, institutional traders and other financial institutions on a fee basis. Indies need to disclose their relationship with the financial firm at end of their reports.

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Bearish kicking is a bearish reversal candlestick pattern, which indicates the start of a new downtrend. It is a rare but highly reliable formation consists of two candlesticks – one bullish (white or colorless) candlestick and one bearish (black or colored) candlestick. Both are marubozu candlesticks (having no upper and lower shadows, or having very small shadows). Bearish kicking pattern has a strong resemblance to bearish separating lines pattern, the difference is that it has a gap between the two candlesticks.



Requirements of bearish kicking candlestick pattern include,

• The prior trend is not important with this pattern.
• On first day, there should be a bullish marubozu candlestick.
• On second day, there should be a bearish marubozu candlestick which opens below a downside gap.

The opening of second candlestick way below the closing of first day candlestick and the continuous bearish activity to close the day in a new low sends a strong signal that the market is bearish. More over, the price of second day never enters first days range, giving the indication that it is difficult to move the prices up.

Bearish kicking candlestick pattern is a highly reliable pattern and the reliability increases with increase in gap, increase in real-body and trading volume of second day candlestick. Confirmation of bearish trend is suggested, which can be a lower gap (occurs many times), a bearish candlestick or lower close on next trading day.

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Chaikin Oscillator, also known as Chaikin Accumulation/Distribution (A/D) Oscillator, is a lesser known but effective indicator to analyze money flow, to confirm trends and to predict trend changes. The indicator was created by Marc Chaikin and hence the name. Simply, Chaikin oscillator is the Moving Average Convergence Divergence (MACD) applied to Accumulation Distribution line. Know more about Accumulation/Distribution indicator.

Chaikin oscillator is calculated by subtracting 10-day Exponential Moving Average (EMA) from 3-day EMA of the Accumulation/Distribution line. Chaikin oscillator works on some assumptions as

1. The buying/selling pressure can be determined by the location of close.
2. Lack of trading volume in an uptrend/downtrend indicates the weakening of the trend.
3. Divergence between price and volume can indicate a possible reversal.

With Chaikin oscillator bullish signals are generated when there is a positive divergence (in price and volume) and/or at bullish centerline crossover (from below). Bearish signals are generated when there is a negative divergence and/or bearish centerline crossover (from above). As Chaikin oscillator is an indicator of an indicator, confirmation of divergences should be confirmed. Other volume and trend indicators should be used in conjunction with Chaikin oscillator; Marc Chaikin suggested to use 21-day price envelop and an overbought/oversold indicators like RSI.

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Bond Exchange Traded Funds (ETFs) are one new investment option available for investors who want steady long-term returns, portfolio diversity and lower-risk. Bond ETFs helps traders to overcome the lesser transparency and liquidity in bond market (except for some liquid bonds). More over, unlike bonds, the investors can monitor them more accurately as the historical and current prices are readily available.

Bond ETFs or fixed income ETFs passively tracks government and corporate bond indices. Usually bonds are held in ETF portfolio until maturity and then the money from payoff is reinvested in new bonds. The unavailability of an active secondary market makes it difficult to analyze the liquidity of bonds tracked; this is more common with ETFs tracking corporate bonds. Most ETFs overcome this problem by tracking a small number of liquid bonds in the portfolio rather than tracking all of them; the process is representative sampling.

Bond ETFs holders receive monthly dividends on bond interests and annual dividends on capital gains. The greatest advantage of bond ETFs is the protection from interest rate changes (remember ETFs can also be short traded). Other advantages include 1) diversification – as with a low amount one can invest indirectly into many bonds (even international bonds), 2) lower expense ratio than bond mutual funds, and 3) current and historical prices. Disadvantages include 1) trading costs and management costs which make them unsuitable for small and frequent trades, 2) not suitable for short-term profits and 3) the returns are usually lower compared to stocks and other financial instruments.

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The Week Ahead: Investor anxiety continues to ease on reports such as the profit numbers from Wells Fargo and a shrinking trade deficit by 28%. Markets will look at the Producer Price Index, retail sales, business inventories, and consumer confidence on Monday. Tax day on Wednesday brings the CPI, industrial production, and mortgage applications. The housing starts, building permits, and jobless claims data are due Thursday. Friday, the University of Michigan's Consumer Confidence report is released.

Stocks to Watch: Many important earnings releases are due during the week from different sectors of the economy starting Tuesday with Goldman Sachs (GS), Johnson & Johnson (JNJ), and Intel (INTC). On Wednesday, Abbott Labs (ABT) and Biogen Idec (BIIB) are due along with AMR Corp. (AMR). Thursday brings reports from J.P. Morgan Chase (JPM) and Google (GOOG). The week will end with two important reports from General Electric (GE) AND CitiGroup (C ).

Special Note: During the markets fifth straight week up, much focus was brought to the attention of what billionaire investor/tycoon George Soros warned was a Bear Market Rally. In particular was that people misunderstand that something profound has happened to the financial system which does not happen often and that is its collapse. Therefore, the economy has not yet turned the corner to begin a recovery and underlying fundamentals are too fragile to be relied upon under current economic conditions.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Bearish advance block is a candlestick trend reversal (or top reversal) pattern which indicate the end of a current uptrend. It is a three candlestick pattern which, at first glance, resembles Bullish Three White Soldiers pattern. But there are two key differences, three white soldiers are formed in downtrends and advance block are formed in up-trends, and in bearish advance block the real-bodies of second and third candlestick are smaller and upper shadow are longer than previous candlestick’s.



The requirements of a bearish advance block candlestick pattern include,

• The pattern should be formed in a significant uptrend.
• All three candlesticks should be bullish (white or colorless) having higher closes than previous day.
• The second and third candlestick should open within the real-body of previous candlestick.
• The real-body of candlestick should be smaller than previous one.
• The upper wick of new candlesticks should be longer than previous one.

The longer upper shadows on second and third days indicate that the bulls are unable to sustain the momentum. Uptrend is getting weaker by day and a reversal is near.

Bearish advance block pattern is considered as a moderately reliable pattern. The pattern is more reliable when the current uptrend has pushed prices to new highs. Further indication of possible trend change should be evident by decrease in trading volume. Confirmation of trend change is suggested which is a bearish/black candlestick, large gap down or a lower close on the next day.

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Exponential moving average or EMA, also known as Exponentially Weighted Moving Average, is one of the most widely used trend-following tools especially by swing traders and long-term traders. EMA is created to overcome the limitations of simple moving average; EMA is less simple and less lagging. Exponential moving average is also used to create other effective indicators like Percentage Price Oscillator (PPO) and Moving Average Convergence Divergence (MACD)

Exponential Moving Average, like the simple moving average, is the average of closing prices of a period. But unlike simple MA, it assigns more value (weight) to recent data and less value to older data; in other words EMA is more sensitive to recent price movements. The degree of weighting is defined as Alpha (α), whose value range from 0 to 1, and is defined as 2/(N+1), where N is the number of periods in the MA. Short-term traders use shorter periods (12 and 26 days are most common) and long-term traders use longer periods (50-days or 200-days).

For example, a new day’s EMA is calculated in a 12-day EMA by adding a weight of 0.1538 (2/13) to the new day’s closing price. This is closing price + (0.1538 x closing price). Although it is still in debate that whether EMA offer better results than simple MA, it is a valuable and simple tool for short-term traders who want to catch-up the current trend. More EMA can also be used in conjunction with other moving averages, and volume and price indicators to get better results.

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The Week Ahead: A jump in the unemployment rate to 8.5% was not enough to halt the current rally indicating the markets have discounted much of the bad news already. Reports to watch this week include consumer credit on Tuesday along with the minutes of the FOMC March meeting. Jobless claims which seem to be a leading indicator for the employment report are due out on Thursday along with import prices for March. Friday, the markets are closed for the Good Friday holiday.

Stocks to Watch: Shares of Novo Nordisk (NVO) declined sharply on word the FDA may delay the launch of its new diabetes drug Liraglutide and may be only the beginning of larger declines if the stock breaks a lateral trading range between 42 and 56. Zep Inc. (ZEP), a cleaning products company, received a downgrade from a major brokerage after the stock had nearly doubled since early March. Bristol-Myers Squibb (BMY) was downgraded as well in part on valuation and that odds of a takeover are fading.

Special Note: The countertrend rally begins its fifth week with the major indexes near term overbought on many technical measures including stochastics. Enough momentum has manifested itself since the low a month ago that any pullback from here may act as a pause to refresh. With one week left until first quarter earnings releases start, the markets may sense a little trepidation this week ahead of the extended holiday weekend ahead.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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There are now a number of types of Exchange Traded Funds (ETFs) available to choose from. Sector ETFs which track one or more sectors like energy, financials, industries, health care, utilities, technologies, etc. and broad market based ETFs are two broad ETF types available. Here are some advantages and disadvantages of investing in sector ETFs over broad market based ETFs.

Advantages of Sector Based ETFs

1. Investors can profit from market sectors which are expected to outperform other sectors or of which stocks are undervalued.
2. The portfolio can be fine tuned according to investor needs; for managing portfolio returns, risks or diversification.
3. Buy-low and sell-high strategy can be better implemented with sector ETFs than broad-based ETFs.
4. Carefully investing in liquid and broad sectors can help the investors to profit from the market, even if the market is falling.
5. Investors can also perform sector ETF rotation strategies to profit from changing economic conditions.
6. Availability of different weight sector ETFs (Market weighted, equally weighted and fundamentally weighted) and smart/leveraged ETFs offer greater flexibility for traders.

Disadvantages of Sector Based ETFs

1. Sector based ETFs tend to have higher expense ratio than broad-based ETFs.
2. They are less liquid than broad-based ETFs and thus the ask-bid spread can be wider, causing higher trading costs.
3. They offer lesser diversification and thus not suited for investors who want to invest their small amount of money in broad (higher liquid and diversified) markets.
4. Trading costs can also increase if the trader buys and sells the ETFs frequently, is following sector rotation strategies and/or want to diversify portfolio by investing in many sectors.
5. Sector ETF investing needs good fundamental analysis and market understanding and can be time consuming. More over no one can exactly predict which sector is going to outperform and which is going to under perform.

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Compounding is the process of reinvesting the previous earnings (profits) to generate more profits. For example suppose a trader makes 5% profit as an average per trade and his initial position size is $1,000. By keeping the position size constant for consecutive traders (e.g.: 5 trades) he can achieve a profit of $250 or 25% of his initial investing capital. If the trader is compounding, after 10 trades the trader can have a position size of $1276.2 and a total profit of $276.2 or 27.6% of initial investing capital. More over the position size grows continuously (1000, 1050, 1102.5, 1157.6, 1215.6…) and the trader can make more profits.

Advantages of Compounding

1. Many times compounding works like Dollar Cost Averaging (DCA) and the traders can continuously grow their portfolios.
2. Traders can start trading with risk-free trading capital and can grow their capital.
3. Compounding can be done in any style of trading, instrument and market.
4. As the trader is risking only the initial amount, there is no actual increase in capital-loss risk with increasing position sizes.
5. Good for traders who look for long-term portfolio growth (e.g.: retirement investing).

Disadvantages of Compounding

1. Compounding needs experience and market knowledge because there must be more winning trades.
2. Compounding needs good money management and is not so suitable for traders who trade for livelihood (who lives on profit from investment).
3. Compounding is also not a good strategy to follow when the returns are too volatile.

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Bullish belt hold is a trend-reversal candlestick pattern which indicates the end of a downtrend and beginning of a new uptrend. It is a single candlestick pattern formed of a long white (bullish or colorless) candlestick, which is an opening marubozo having no lower shadow. Bullish belt hold candlestick occurs frequently and is considered less reliable; thus it is vital to confirm the trend change.


The requirements of a bullish belt hold candlestick are,

• The long white candlestick should be formed after a significant downtrend.
• The price of the day should open below a significant gap (except forex charts) and the opening price should be the lowest price for the day.
• The day should be noticeable with strong bullish activity so that the price closes at or near the highest price of the day.

Bullish belt hold candlestick forms when the bears fail to keep the downtrend and the bullish activities at opening hours (and lower gap opening) tempt many shorts to cover their positions. This enhances the confidence of bulls and marks the beginning of a new uptrend.

Reliability of bullish belt hold candlestick is low; reliability can increase with increase in real-body of candlestick, increase in trading volume and with weakening of prior downtrend. The confirmations can be a bullish candlestick or a higher gap on next trading day. Traders can also use other volume and trend analyzing tools to confirm trend changes and to find enter and exit points.

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Moving average envelopes, also known as price envelops, percentage envelops, trading bands and moving average bands, are moving average bands used for different trading purposes. They are lines running above and below the moving average creating a trading band and can be used 1) as support and resistance levels, 2) for identifying overbought and oversold conditions and 3) to generate buy and sell signals.



Moving average envelopes are simple yet effective trading tools. The upper and lower envelope lines are calculated from the moving average for a period; ideal is 35 to 45 days, but can be short (for short-term traders) or long (for long-term traders). The formulae are,

Where MA is the moving average for the period
N is the percentage figure to plot upper and lower bands.

The percentage figure should correspond to the objective of using the moving average envelopes. Most traders use a value around 5%; percentages from 2 to 6 are also common. In general the percentage value should be determined with respect to the period of moving average, volatility of trading instrument and previous ups and lows.

When used for indicating support and resistance levels, upper band is taken as resistance and lower band is taken as support. When used for generating signals (usually small percentage figures) crossing of lower band from below generates buy signals and crossing upper band from above generates sell signals. Many traders also use the central moving average (actual moving average) and crossing of this line is used to generate buy and sell signals.

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