Envelopes Indicator | Moving Average Envelope | Envelopes Trading Strategy | IFCM

# Envelopes Indicator - Moving Average Envelope

The Envelopes indicator reflects the price overbought and oversold conditions helping to identify the entry or exit points as well as possible trend break-downs.

## How to Use Envelopes Indicator

The Envelopes indicator consists of two SMAs that together form a flexible channel in which the price evolves. The averages are plotted around a Moving Average in a constant percentage distance which may be adjusted according to the current market volatility. Each line serves as a margin of the price fluctuation range.

In a trending market take only oversold signals in an uptrend conditions and overbought signals in a downtrend conditions.

In a ranging market the price reaching the top line serves as a sell signal, while the price at the lower line generates a signal to buy.

Envelopes Indicator

## Envelopes Indicator Formula (Calculation)

In the calculation of the upper and lower lines of the Envelopes indicator, the volume of deviation from the moving average is set according to the average volatility of the instrument (the higher it is, the great the deviation).

Here is the formula for calculating the Envelopes Indicator:

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

In the Envelopes Indicator formula, the SMA is the Simple Moving Average, the N is the averaging period, the K/1000 is the value of shifting from the average (measured in basis points).

## Forex Indicators FAQ

### What is a Forex Indicator?

Forex technical analysis indicators are regularly used by traders to predict price movements in the Foreign Exchange market and thus increase the likelihood of making money in the Forex market. Forex indicators actually take into account the price and volume of a particular trading instrument for further market forecasting.

### What are the Best Technical Indicators?

Technical analysis, which is often included in various trading strategies, cannot be considered separately from technical indicators. Some indicators are rarely used, while others are almost irreplaceable for many traders. We highlighted 5 the most popular technical analysis indicators: Moving average (MA), Exponential moving average (EMA), Stochastic oscillator, Bollinger bands, Moving average convergence divergence (MACD).

### How to Use Technical Indicators?

Trading strategies usually require multiple technical analysis indicators to increase forecast accuracy. Lagging technical indicators show past trends, while leading indicators predict upcoming moves. When selecting trading indicators, also consider different types of charting tools, such as volume, momentum, volatility and trend indicators.

### Do Indicators Work in Forex?

There are 2 types of indicators: lagging and leading. Lagging indicators base on past movements and market reversals, and are more effective when markets are trending strongly. Leading indicators try to predict the price moves and reversals in the future, they are used commonly in range trading, and since they produce many false signals, they are not suitable for trend trading.