Description:
The Envelope Indicator is a popular technical analysis tool traders and investors use to identify potential trading opportunities in the financial markets. It helps to determine overbought and oversold conditions, trend direction, and possible support and resistance levels.
Input Parameters:
- Length: Number of periods used in the calculation.
- Width, %: Determines the percentage deviation from the SMA.
- Offset: The offset value is used to access the data of any candle or indicator concerning the current candle, to access the current candle data it will use the offset value of "0", to access previous candle data "-1" offset value will be used, access data of previous to previous "-2" will be used.
- Price Source: The specific data points (such as open, high, low, or close) from each candle in a financial chart that an indicator uses for mathematical computations, enabling the calculation of metrics like the average over a specified period.
Use Cases:
- Overbought and Oversold Conditions: When the price touches or moves outside the upper envelope, it indicates an overbought condition, suggesting that the asset may be overvalued and due for a price correction. Conversely, when the price touches or moves outside the lower envelope, it signals an oversold condition, indicating that the asset may be undervalued and due for a price rebound.
- Trend Trading: Traders can also use the Envelope Indicator to identify the trend direction. When the price consistently trades above the SMA, it indicates an uptrend, and traders can look for buying opportunities. Conversely, when the price consistently trades below the SMA, it signals a downtrend, and traders can consider selling or shorting opportunities.
- Support and Resistance Levels: The upper and lower envelopes can act as potential support and resistance levels. In an uptrend, the lower envelope may serve as a support level, where the price is more likely to bounce back up. In a downtrend, the upper envelope can act as a resistance level, where the price is more likely to reverse and move lower.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Dynamic Alerts
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.