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Envelopes Indicator 

 

Envelopes Indicator Purpose


Envelopes technical indicator is frequently formed by two moving averages that characterize upper and lower price range levels. Traders use this technical indicator to define extreme overbought and oversold trading conditions in the FX market. Besides, the envelopes indicator may help to determine trading ranges for a particular instrument. The envelopes indicator helps to identify the entry or exit points as well as possible trend break-downs. This indicator works with other Oscillator indicator called Bollinger Bands as two encouraged dealers make the price move to the extremes.



Envelopes Indicator Usage


Envelopes indicator consists of two Simple Moving Averages. SMAs together figure a flexible feed in which the price evolves. The averages are plotted around a Moving Average in a stable percentage distance which may be familiar according to the current market volatility. Each line provides as a margin of the price oscillation range.

This indicator gives to trader the following trading signals:

  • Buy when the market price goes the upper line
  • Sell when the market price goes the lower line




Envelopes Indicator Calculation


The upper line is the SMA of the closing price, and is shifted upwards.


Upper Band = SMA(CLOSE, N)*[1+K/1000]


The lower line is the SMA of the closing price, and shifted downwards.


Lower Band = SMA(CLOSE, N)*[1-K/1000]


Where:


SMA — Simple Moving Average;
N — averaging period;
K/1000 — the value of shifting from the average (measured in basis points).

 

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