A Moving Average Envelope chart uses the Moving Averages calculated from the underlying price. The results are shifted up and down by a fixed percentage and imposed over the day's price information.

The underlying concept is that overzealous buyers and sellers will drive prices toward the upper or lower band. Look for the price to penetrate the band followed by a small reversal to predict a large change in direction. This is similar to the interpretation of Bollinger Bands.

Information provided by John Murphy, author of Technical Analysis of the Financial Markets and The Visual Investor.