Envelopes technical indicator consists of 2 moving averages one of which is shifted upwards and another is shifted downwards. Envelops can be used as bands around price action that signify overbought and oversold levels and can also be used as price targets. This indicator is the same as Bollinger Band as both show the price moves to their extremes.
The period set by default in MetaTrader is 14, whereas the deviation (shift of the MAs) is 0.1%. The amount of deviation should be set depending on the market’s volatility: the higher the volatility is, the bigger it should be. For intraday trading, one may use an H1 chart, and 10-period average and 0.3-0.5% deviation should be fine for any currency pair.
How to interpret:
Buy when the price reaches the lower margin on the band.
Sell when the price reaches the upper margin of the band.
Other articles in this section
- Types of charts
- Heiken Ashi
- Quantitative easing policy
- Pivot Points
- Moving Average
- Williams’ Percent Range (%R)
- Relative Vigor Index (RVI)
- Force index
- Bulls/Bears Power
- Average True Range
- How to trade on central bank decisions?
- CCI (Commodity Channel Index)
- Standard deviation
- Parabolic SAR
- RSI (Relative Strength Index)
- Bollinger bands
- Trend indicators
- Introduction to technical indicators
- Support and resistance
- Technical analysis
- Central Banks: policy and effects
- Fundamental factors
- Fundamental analysis
- Fundamental vs technical analysis