# Indicator Envelopes

• Apr 30 2021
• by
• Analyst AZA

Indicator Envelopes

In English, the name of the indicator means «envelopes», in addition, this indicator is known under other names - «Envelope Lines» or «Trading Lanes».

Focusing on the practical experience of professionals, you can safely say that this tool is an effective trend indicator.

The tool is based on a basic statistical principle, which guarantees the fact that the price will be for quite a long time just inside the indicator.

And inside the tool itself, we keep the usual MA-moving averages, and in the general format, its model is similar to another popular Bollinger Band.

It is also worth noting that Envelopes is a theory that provides for the return of the price level to a fixed range, after the jumps it has experienced.

1. Technical side of the indicator: description and adjustment

If you look at the instrument from the technical side, its meaning is as follows: the indicator is a combination of the MA pair, which is located from the MA master at a certain interval.

Lines create such a channel, and its boundaries are influenced by the level of volatility of the currency pair.

Both moving averages have a period of 14, but there is an insignificant error (deviation equal to 0.1%), which makes their mutual position impossible.

In the role of the boundaries of the analyzed corridor, it is possible to consider the Envelope lines. In addition, in some situations, the indicator includes the base moving average line, which performs additional control.

The process of setting the indicator involves such important aspects:

- the average value of the variability of the selected currency pair;

- all calculations must be made so that at least 90% of all bars are located between the direct Envelopes;

- A simple moving average is a line that is located on the graph in the center, and the other two lines that create the Envelope itself will be simple moving averages that are shifted vertically (up or down).

Also, it is necessary to take into account such parameters as the width of the Envelope.

The width is created by a deviation - one of the most important values ​​in the setting.

And remember that for each specific trading instrument such a parameter will be determined manually. The main condition: the price should be in the range of 94% of the time.

To calculate the Envelopes lines, you need to use values ​​such as:

-period MA (number of candles for analysis, the lower - the higher the speed of the Envelope);

- MA Shift - responsible for determining the smoothing factor;

- MA Metho - you need to enter the MA option;

- Deviation. This parameter assumes that the envelope factor is entered.

The most favorable data are from 0.1 to 2%;

- Applied Price: it is responsible for the amount of the shift for the current value of the price.

If the coefficient is more than 2%, then the use of the indicator will become simply useless, and such a value as mixing allows you to get into the trend with higher accuracy (which is especially important for currency pairs with a high level of volatility).

Smoothing is not an unimportant aspect, which makes it possible to make the lines smoother.

The very process of setting the indicator is best done on the chart, increasing the corridor until the moment when most of the candles are in it.

To make the most effective use of the Envelope in trading in the forex market, you need:

- identify the most suitable time for the entry, namely, to find out that a number of these conditions are met:

- the price is in the channel for a rather long period;

- The price goes beyond the outer limits of the mediator;

- the price goes back.

You need to open a trade operation when there is a price refund.

Short-term tactics for trade will not work: one or two bars obviously will not be enough, you need at least 5 candles (or even more).

The most optimal method is the expectation of a price near the Simple Moving Average, which implies the installation of «time-based» forecasting, and artificially. In this situation, it is better to close the positions.

A game that involves a downgrade operation is subject to the following conditions:

- the market is dominated by a downtrend;

- Indicator Envelopes significantly moves away from the price, rushing down;

- The price itself approaches the upper border.

With this tool you can:

-trading at the retreat (the border of the channel will be the lines of support and resistance);

- apply deviation quotes from moving averages to the boundaries of the channel.

- an instrument that performs the role of an effective filter - makes it possible to determine the presence of a flat on Forex.

Pros of the indicator:

- the boundaries of the trend are displayed exactly during the lateral movement of the market;

- clarity of signals in the presence of a flat;

- an opportunity to know the level of volatility of a currency pair;

- redrawing is missing.

Among the minuses is to highlight the fact that the signals are provided with a delay.

Bottom line: this tool is well suited for conducting medium-term tactics.

Indicator Envelopes

Focusing on the practical experience of professionals, you can safely say that this tool is an effective trend indicator.