Skip to main content

How to use Envelopes Indicator

There are many tools for accurate prediction the future movement of the asset price. These standard indicators are divided up into basic types to show trend, oscillations, directions and etc. The Envelopes indicator works by placing trading bands above and below the price level of our instrument of choice. You need to apply SMA (Simple Moving Average) to build envelops.

Pocket Option trading platform offers traders a wide range of tools, indicators, oscillators, instruments, and advisors. All you need to do is to click on the corresponding icon in the left corner of the screen and select an indicator from the general list.

How to set it up? What are the recommended parameters?

Many traders will tell you that Envelopes looks like the Bollinger Bands advisor. They will also tell you that they prefer using Envelopes. In the opinion of most professionals, it is Envelopes that gives clearer signals since it does not lag.

Once you activate it, you will see three lines. When you apply the envelope indicator, you will notice two lines or bands which appear above and below the price and these lines are called upper and lower envelopes. Also, the area between the bands represents the channel. SMA indicates the “fairness” of the current price. A strong downward deviation indicates that the market is overbought, while an upward deviation indicates that the market is oversold.

In general, it is recommended to use the indicator on higher timeframes. It is not suitable for turbo options. The recommended timeframes are higher than 20 bars. It is advisable to experiment with the deviation. This indicator depends on market volatility. The stronger the fluctuations, the higher the deviation. It is recommended to use parameter: 0.05 to 0.5.

Envelopes can be applied to any volatility and that’s why it can be used for all assets, including cryptocurrencies.

How to trade with Envelopes?

There are three basic types of signals from the indicator. Let’s consider them one by one.

The first type of signal is a breakdown of one of the channel boundaries with a return on the next candlestick. It is recommended opening a deal in the direction of return immediately after the closing of the bar inside the channel.

The second signal is a rebound from any of the channel boundaries. In this case, buy an option in the direction of the rebound.

Finally, the third signal is the channel breakout. Some traders buy a contract after the breakout bar closes. However, there is a high probability that the price will return to the channel at the next candlestick.

If you use the first two signals, set the expiration time equal formation of 2 bars.

If you use the third signal, set the expiration time equal formation of one bar, since the price can reverse at any moment.

Envelopes is a quality tool for technical market analysis and often becomes the backbone of a trading system. We recommend using it with Stochastic or RSI.

At Pocket Option, traders have access to the wide range of trading tools! As well as the Envelopes indicator, your account comes with a range of various technical indicators as well real-time market data, analysis and much more!

Leave a Reply

Your email address will not be published. Required fields are marked *