The Envelopes indicator calculated through the Moving Average that gets the most attention in the Forex market and the appearance of which is similar to the Bollinger Bands indicator allows us to see the trend view of the asset that is subjected to trade.
With the moving average with 14-periods and the deviation value of 0.10%, the Envelopes indicator shows us the trend view with the lines formed above and below the current price. In the Envelopes Indicator, changes regarding the moving average number and the standard deviation value might be done for it to be compatible with the asset.
For instance, 1 standard deviation value can signify about 68% probability, 2 standard deviation value can signify about 95% probability, and 3 standard deviation value can signify statistically, approximately 99% probability/reliability. Also, the 14-period moving average can be revised as periods of 9 or 22.
In order to reach the Envelıopes indicator in the MetaTrader platform, you can respectively click on the tabs of Toolbar- Insert- Indicator and then Trend.
While uploading the indicator to the platform, there are sections of Parameters, Colors, Levels, Visualization. If there is a change, the most important part to pay attention to is saved as Parameters.
Brief information about the Period, MA Method, Apply To, and Deviation categories that take place in the Parameters section can be found down below.
The Period section represents 14 for the indicator as to the standard. In this section, the number of prices the averages of which will be taken must be written. These numbers can be universal numbers such as 20, 50, 100, 200, or Fibonacci numbers such as 13, 21, 34, 55, 89, 144, and 233, or other short-term numbers such as 9 and 22, which can be considered short-term. What you need to know here is that rather than which number it will be, the related indicator shows the trend expectation in the maximum and the most sensitive way to the traders.
The MA Method section is the type of average from which the price will be taken as well as the number in the period section. It is divided into four categories as; Moving Average; Simple, Exponential, Smoothed, and Linear Weighted. The trader chooses 4 moving average types as much as the number ranked in the period section and it is then formalized. The main reason for these types differing from each other is stated as the difference of the calculations that are included in the averages. As a standard, the moving average in the Envelopes indicator is calculated by the Simple method.
The Apply To section is calculated with the method preferred in the MA Method section. The average of the related price is taken as much as the number ranked in the period section. The most essential characteristic of the Apply To section is the freedom to choose the relevant asset price type. As the standard, the averages are formalized with taking the closing price as the base. However, there are a lot of options such as the opening price, the highest price, the lowest price, the median price as well as the closing price. As a start, the prices in the moving average calculations in the Envelopes indicator are taken into consideration as the closing price.
Deviation section: We create the approximate deviation of the price of the asset that is subjected to trade through this section. The main objective here is to interpret the trend expectation in the view of envelopes indicator of the asset price. You can increase the deviation value and create a Bollinger band view or interpret the related indicators as a transition zone via sharing the small deviation values.
For instance, 1 standard deviation value can signify about 68% probability, 2 standard deviation value can signify about 95% probability, and 3 standard deviation value can signify statistically approximately 99% probability/reliability.
No numbers were changed in the graph above and the related indicator is interpreted as the transition zone. This means the asset price is considered negative if it is below the Envelopes lines and considered positive if it is above the Envelopes lines.
The graph shared below is the revised version of the deviation value from 0.10% to 1.0%. This graphic might be taken into consideration to see the maximum and minimum parts just like in the Bollinger Band.
To summarise, the Envelopes indicator is an indicator that is created via benefiting from the moving averages in order to see the trend of the asset that is subjected to trade.You can use the indicator with various revisions such as the Bollinger band. It shouldn’t be forgotten that, as for all indicators, the Envelopes indicator should not be used alone and it needs to be supported with more than one auxiliary tool in trade strategies.