Hey traders! Today, let’s dive into the Envelopes technical indicator, a tool that can be a game-changer in your trading strategy.
So, what exactly are Envelopes? At its core, this indicator consists of two Moving Averages. One is shifted upwards, while the other is shifted downwards. This simple setup helps traders identify potential buying and selling opportunities.
The key to using Envelopes effectively lies in adjusting the band margins according to market volatility. The more volatile the market, the greater the shift should be. This means that when prices are swinging wildly, your indicator will adapt to better capture those movements.
How do Envelopes work? They help define the upper and lower boundaries of the price range. When the price hits the upper band, it’s a signal to consider selling. Conversely, when it touches the lower band, it’s prime time to think about buying. It’s all about recognizing when price extremes are likely to revert to more stable levels, a concept that’s akin to how Bollinger Bands function.
Calculation
Upper Band = SMA(CLOSE, N)*[1+K/1000]
Lower Band = SMA(CLOSE, N)*[1-K/1000]
Here’s a quick breakdown of the variables:
- SMA — Simple Moving Average;
- N — the period over which you’re averaging;
- K/1000 — how much you’re shifting from the average (in basis points).
If you’re looking for a more in-depth look at Envelopes, check out the Technical Analysis: Envelopes on MetaTrader’s site.
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