Envelopes indicator Is an indicator that is essentially a variation of the Bollinger indicator. Envelopes in English means envelope, envelope, wrapper. This reflects the essence of the indicator’s work. You do not need to search for where to download the Envelopes indicator, it is preinstalled in Metatrader and is located in the menu Insert -> Indicators -> Trend.
Envelopes (stress on the first syllable) are often called “envelopes”, since the indicator really bends, wraps, the price like an envelope. There are similarities here with Bollinger bands, which you can read about at the given link, and I would call Envelopes a somewhat simplified version of it.
The indicator lines are nothing more than two moving averages. They serve as overbought and oversold areas:
- if the price is at the lower border, the market is considered oversold and the probable growth of quotes is considered
- if the price is near the upper border – on the contrary, the market is overbought and opportunities for selling are considered
When the price is within the envelope, we can talk about a fairly calm market. If the price has gone beyond the boundaries of the indicator, there is strong volatility in the market or a powerful directional trend.
Read about these other concepts in the Forex Terms article.
Envelopes setting indicator
There are not many settings. The first thing we can do is choose a moving average period. It is worth reading our article about this indicator, since it is rightfully considered one of the most important trend indicators and you need to know the principles of its operation.
- the longer the period, the smoother the indicator lines will look and the slower they will react to price changes
- the shorter the period, the faster the indicator will react, but an increase in the number of false signals is possible
The second significant parameter is Deviation, indicated in percentage. Here I would recommend to select the value of this parameter depending on the timeframe on which you are trading. We also have an article about which timeframe it is better to trade for a beginner and a professional, read it.
In general, the principle here is as follows: the older the TF, the larger the parameter should be Deviation the Envelopes indicator. I advise you to choose this experimentally. Here are some examples:
- on TF M30, you can leave the standard deviation values - 0.1%
- on H1, it should be increased a little, for example, up to 0.15%
- on H4 – increase to 0.5%
These values may differ depending on the currency pair traded and the moving average period used. Therefore, in each specific case, you need to select convenient settings for the Envelopes indicator for yourself, fortunately there is nothing complicated about it.
The principle is as follows: you need to select such values of the parameters of the deviation and the period of the moving average for the Envelopes indicator,
- for the price to work out the 2 extreme lines of the indicator as clearly as possible (that is, bounce off them)
- and for the price to stay within our “envelope” for the maximum amount of time, and go beyond it only when there is really strong volatility in the market. Otherwise, it can be configured so that the slightest “sneeze” will already seem to be something extraordinary, so extremes should be avoided.
The rest of the settings, I would call secondary, and without a clear understanding of “why” you should not change them. For details on how to install, configure and describe the Envelopes indicator, see the video: