Binary Options Envelope Indicator Tips
Envelope Indicator Description
Envelope indicator represents two lines which repeat a shape of a certain moving average which in its turn moves from it on a particular distance (depends on settings) thus forming a channel. This channel plays a very significant role because depending on its borders, real market volatility is calculated.
Envelope indicator is a little bit similar to Bollinger Bands yet there are certain distinctions. The main and most important difference is a diapason of price changes. In both cases, this field is located within the border on the first and second line. In case if the price on Forex increases and reaches an up border (first moving average), then it is necessary to open short-term positions. But if the currency price moves down to a lower moving average, then an Envelope indicator demonstrates a sign of opening long-term positions to traders.
Usage of an Indicator
The principle of an Envelope indicator usage is based on price movement which means that whatever the jump in prices is, the figures always return to the primary number. As a rule, situations when prices get very low or high depend on activity of a “bear” (increase) or “bull” (decrease). In this case, the figures reach maximum-extremum. In simple words, in the majority of the time, price for assets is stable and extremum appears as a result of balance interruption caused by buyers and sellers.
In a visual display, Envelope indicator covers a price chart with the help of a specific “ribbon”. If there are some powerful price movements for assets on Forex market, then most probably it is the situation when the price moves beyond the indicator limits. The same situation happens with Bollinger Bands when the “ribbon” goes beyond the border. Yet, nevertheless, the prices return to their primary positions.
Resume: Envelope Trading Strategy
It is very important to know exactly how to work with both envelope indicator as a trading system and strategies based on it. It is necessary to select a deflexion coefficient of indicator lines. One should also know that the lower line serves as a support whereas the upper one as a resistance. The best time to buy is when the price reaches an upper border whereas sell when it reaches a lower border. Envelope trading strategy is used for short-term trading.
As in many cases, a trader should realize that he/she cannot completely rely on an indicator as it is just an addition to analytical work and technical analysis. Moreover, an important role belongs to a broker that a trader works with as well as personal knowledge, skills and experience in trading on Forex market.