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What are Envelopes?

December 16, 2022 |
　　　

What are Envelopes?

Envelopes are a technical analysis tool that traders use to identify potential overbought and oversold conditions in the markets. An envelope is a moving average-based indicator that consists of two lines plotted above and below the main price chart. The upper line is typically a certain percentage above the moving average, while the lower line is a certain percentage below the moving average. The distance between the upper and lower lines is determined by the trader’s chosen percentage, which is often set to a value between 5% and 10%.

How are they used by traders?

Traders typically use envelopes to identify potential overbought and oversold conditions in the markets. When the price of an asset reaches the upper envelope line, it may be considered overbought and may be due for a pullback or correction. On the other hand, when the price of an asset reaches the lower envelope line, it may be considered oversold and may be due for a bounce or rally. Traders can also use envelopes to confirm the strength of a trend or to identify potential trend reversals. For example, if the price of an asset is consistently staying within the upper and lower envelope lines, this may indicate that the trend is strong and likely to continue. Conversely, if the price of an asset is consistently breaking outside of the envelope lines, this may suggest that the trend is losing momentum and may be about to reverse.

How can I add Envelopes to a chart in MT4 or MT5?

To add Envelopes to a chart in MetaTrader 4 (MT4) or MetaTrader 5 (MT5), follow these steps:

  1. Open the chart for the currency pair, stock, or other instrument that you want to analyze.
  2. Click on the ”Insert” menu at the top of the chart and select ”Indicators” from the drop-down list.
  3. In the ”Indicators” window, scroll down until you find the ”Envelopes” and then double-click on it to add it to the chart.
  4. Envelopes will appear on the chart as two lines plotted above and below the main price chart.
  5. You can customize the appearance of the Envelopes by right-clicking on it and selecting ”Properties” from the context menu. This will open the ”Envelopes” properties window, where you can change the color, line style, and other settings for the indicator.
  6. Once you have customized the Envelopes to your liking, click ”OK” to apply the changes and close the properties window. The updated Envelopes will be displayed on the chart.

Envelopes - MT5 chart picture
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