Alright, let’s get one thing straight: when we say “envelopes” in trading, we’re not talking about mailing letters to your ex or sending invoices to clients. In the forex world, Envelopes are a technical analysis indicator that can help you spot trends, reversals, and potential buy or sell opportunities. Cool, right?
It’s basically like Bollinger Bands’ distant cousin – same family of indicators that wrap around a moving average, but with their own unique personality.
How to Read the Envelopes Indicator (No Decoder Ring Needed)
The Envelopes indicator consists of two lines – an upper band and a lower band – that sit above and below a moving average. These lines are shifted by a fixed percentage from that moving average.
Here’s the idea:
Upper band: Price reaches here = might be overbought (time to sell?)
Lower band: Price drops here = might be oversold (time to buy?)
But wait, don’t jump in just yet. These lines are like the rails in a bowling lane – they guide you, but you still need aim.
Setting Up Envelopes: It’s Easier Than Brewing Instant Coffee
Most trading platforms like MetaTrader 4 (MT4) or TradingView already have Envelopes baked in. Here’s how you can set it up:
Basic Settings:
Moving Average Type: Simple Moving Average (SMA) – although you can experiment with EMA too.
Period: Try 14 to start (but tweak depending on your style).
Shift: Usually 0 (leave it alone unless you know what you’re doing).
Deviation: This is the key – try around 0.5% to 2%. The smaller the deviation, the tighter the bands.
Pro Tip: On shorter timeframes (like M15), use tighter envelopes (0.5%). For longer ones (H1 or H4), go a bit wider (1.0%+).
Using Envelopes for Buy/Sell Decisions – The Fun Part!
So how does this thing help you make money?
1. Range Market Strategy (Sideways Market)
When price hits the upper envelope ➜ Consider a sell
When price touches the lower envelope ➜ Consider a buy
Like ping-pong, just don’t get dizzy.
2. Trend-Following Strategy
If price breaks above the upper band and keeps flying, it might be the start of an uptrend ➜ Buy on the pullback.
If price dips below the lower band and keeps falling, that’s a potential downtrend ➜ Sell on the pullback.
Reminder: Don’t use Envelopes alone! Combine with confirmation tools like RSI, MACD, or candlestick patterns. Don’t go to war with one sword, mate.
Final Thoughts: Should You Use Envelopes?
If you’re looking for a simple yet visual way to see where price might reverse or continue, Envelopes are worth adding to your chart. They’re not magical, but they can definitely give you an edge – especially when the market gets all moody and sideways.
Try them out on demo, adjust the settings, see what works for your strategy, and most importantly… don’t trade just because a line was touched – use your brain too!