Envelopes is a technical analysis tool which includes two shifted moving averages, thus forming a channel around the price level. The robot was developed to capture sudden changes in prices that do not depend on the actions of buyers and sellers. The effectiveness of the Envelopes is that it allows you to open trades on the reversals of the graph.
The indicator Envelope is the standard technical tool of MT4, so using it in your strategy is essential. To use the robot, select "Insert" - "Indicators" - "Trend." To download the last version of the indicator for free, go to MTDownloads, which contains detailed instructions for the program installation which is not difficult.
Using this trading assistant is an excellent way to smooth minor fluctuations that do not cause any important changes for trend. To work with this tool is no harder than with Bollinger Bands MBFX or Keltner channels. Customizing Envelopes for significant periods, you'll get a more accurate, but rarer signals. Otherwise, if you make the program analyze small periods and slight deviations, you will receive more signals, but trading has to be careful because of the probability of the likelihood of false indicators.
Configurations of the Envelopes Indicator
After the program is installed into MT4, you can use the default settings and change settings depending on the applied methods of trading. Thus, a trader should pay attention to:
- Period - the number of periods included in constructing the moving average. By default, this parameter is set to 14;
- Deviation (%) - the maximum permitted deviation of the Envelopes lines from the moving average. The standard rate is 0.1, but 0.2 is recommended.
The other settings like colors or type of moving averages are not that important, but still, it is better to test all of them, because this way you will be able to find the ideal method of working with Envelopes.
Primary signals: trend trading
The indicator plots the chart has two line - by default they are blue and red. Blue ones are above; red ones are below.
- When the price crosses the blue line, it is time to sell. This situation says about the imminent downward correction;
- If the schedule is interrupted by the lower line of the indicator, it is time to buy, because soon the price will go up.
Primary signals: flat trading
During flat, Envelopes shows a few profitable signals. At this time, don't wait that the price breaks through the indicator in this market. Light touch of one of the lines is enough. Focus on the reversals of the Japanese candlesticks; they will confirm the conditions to open orders. The principle is still easy:
- If the price has touched the upper line, it is time to sell, because the price will now probably turn down;
- If the price reached the red line, it is time to buy, because the schedule is likely to reverse upwards.
It is important to remember that trading in the narrow corridor is rather risky because the price is very fluctuating and has no steady movement.
As we have already stated, setting the program on long timeframes will rarely bring the right signals. However, a trader must use oscillators to protect from the false signals. Trend Direction and Awesome Oscillator deliver great results along with Envelopes. Their latest versions are free to download from the MTDownloads website.
Trading rules for Envelopes
Nevertheless, an individual trading strategy should be used for this indicator, and we will now give a couple of examples for Envelopes trading.
- Open the order during breakthrough at the moment of the indicator crossing. It is a direct signal of the trend’s beginning;
- Exit the market or changing the position are recommended if the second strip of Envelopes is breached.
Using this technique, all analysts advise using crossings if a candle closes outside the bands.
The second option is to:
- Enter the market with standard strategies;
- Exit if the price touches a moving average, which is between the bands. Here the position should not be changed.
The Envelope indicator is an efficient tool. It is easy to understand and apply in the currency market. If it is used correctly, even a novice will trade successfully. The advantage of Envelopes is that it is effective during sustainable trends and narrow price corridors. This trading robot is examined "from all sides." Lots of profitable strategies are based on Envelopes. Setting up this indicator will not cause difficulties, and the graphic display is perfect even with standard rendering parameters.
However, it is possible to see a significant number of false signals on larger time frames, but it can be corrected by oscillators. Their list is available on the MTD website.
Start to use the Envelopes indicator today by downloading it for free from the MTDownloads website and enjoy profitable Forex trading effortlessly.