The Envelopes indicator defines the upper and lower bounds of a price trading range, and is similar to Bollinger Bands. The indicator consists of two moving averages, one above and one below the price line. Overenthusiastic buyers and sellers push the price to the extremes of the envelope, and then the price readjusts to more normal levels.
This indicator gives the following signals:
- Buy when the price hits the upper line
- Sell when the price hits the lower line
The lines should be moved further apart when the market is volatile, and brought closer together when the market is stable.
The upper line is the simple moving average (SMA) of the closing price, and is shifted upwards.
UPPER = SMA( CLOSE, N ) * ( 1 + K / 1000 )
N is the number of intervals used for the moving average
K is the shifting factor, given in basis points
The lower line is the simple moving average (SMA) of the closing price, and shifted downwards.
LOWER = SMA( CLOSE, N ) * ( 1 – K / 1000 )
You can find more information about technical indicators in the MetaTrader 4 User Guide. Select Help > Help Topics > Analytics > Technical Indicators.