Forex trading is a popular financial instrument that is used by traders to make profits in the financial markets. One of the popular indicators used by traders is envelopes. Envelopes are a popular technical analysis tool used by traders to determine the price range of a currency pair. In this article, we will explain how to use envelopes forex.
What are envelopes?
Envelopes are a technical analysis tool that is used to determine the price range of a currency pair. Envelopes consist of two moving averages that are plotted above and below the currency price chart. The moving averages are calculated by taking the average of the currency pair over a specified period.
The upper envelope is the moving average plus a percentage of the moving average, while the lower envelope is the moving average minus a percentage of the moving average. Typically, the moving average used is the simple moving average (SMA).
How to use envelopes forex
Envelopes are used to determine the range of a currency pair. When the price of the currency pair is above the upper envelope, it is considered overbought, and when the price is below the lower envelope, it is considered oversold. Traders can use this information to make trading decisions.
To use envelopes forex, follow the steps below:
Step 1: Choose a currency pair
The first step in using envelopes forex is to choose a currency pair that you want to trade. You can choose any currency pair that is available on your trading platform.
Step 2: Choose a timeframe
The next step is to choose a timeframe for your chart. Envelopes can be used on any timeframe, but it is recommended to use them on longer timeframes, such as the daily or weekly charts.
Step 3: Add envelopes to your chart
To add envelopes to your chart, go to the indicators menu on your trading platform and select envelopes. You can then choose the period and the percentage that you want to use for the envelopes.
Step 4: Analyze the chart
Once you have added envelopes to your chart, you can analyze the chart to determine the range of the currency pair. If the price is above the upper envelope, it is considered overbought, and if the price is below the lower envelope, it is considered oversold.
Step 5: Make a trading decision
Based on the analysis of the chart, you can make a trading decision. If the price is overbought, you can consider selling the currency pair, and if the price is oversold, you can consider buying the currency pair.
Tips for using envelopes forex
Here are some tips for using envelopes forex:
1. Use envelopes in conjunction with other technical indicators to make trading decisions.
2. Use envelopes on longer timeframes, such as daily or weekly charts, for a more accurate analysis.
3. Adjust the period and percentage of the envelopes to suit your trading style.
4. Use envelopes to determine the range of the currency pair, but do not rely on them solely for trading decisions.
Conclusion
Envelopes are a popular technical analysis tool used by traders to determine the range of a currency pair. By using envelopes forex, traders can make trading decisions based on whether the price is overbought or oversold. Envelopes can be used on any timeframe, but it is recommended to use them on longer timeframes for a more accurate analysis. When using envelopes, it is important to use them in conjunction with other technical indicators and not rely on them solely for trading decisions.
