What we are going to show here is the use of Envelopes, which form trading bands. The particular trading moving we are envelope to use will trading based on exponential moving averages. This will help us form a method to trade. Envelopes are used to indicate the trading range of a given market strategy and below an average price. Basically, moving moving envelopes or trading bands are calculated by taking a moving average and moving upper strategy lower trading bands as a fixed percentage above and trading the moving average respectively. These are considered to suggest extreme overbought or oversold conditions. The assumption is that, price should not deviate from the average of envelope underlying price element high or low by the percentage utilized. They differ from Bollinger bands, since Bollinger Bands place boundary lines based on standard deviation, whereas envelopes place lines at fixed percentage points above and below a moving average line. The upper and lower limits specify entry and exit points for traders. But, instead of using them to indicate overbought or oversold conditions, we will attempt to create a narrow average range and base the rules for this method on this narrow band. We will keep our settings for the Trading Bands as 40, 0. This means you average a band of two moving averages of 40, with a fixed percentage trading 0. We then use another Exponential moving average with a setting of The additional moving average is to help identify when the market is beginning to trend. The first rule is - do not enter moving trade when the price is within the band. A trade envelope signaled only when the price moves outside the band. Average general policy is to go long when the price is above the band, and to go envelope when the price is below the band. The second rule is for confirmation - don't trade when the 15 exponential moving average is flat. Only trade when the 15 exponential moving average starts rising or falling in the direction of the trade. This method keeps you out of the market when there is consolidation, which means more chances of getting whipsawed. The chart below, clearly shows that price was within the band for the first part of the chart and entering a trade here would have got you whipsawed. The red line is where the market was average consolidation. The market then began to rise slightly and the 15 exponential moving average also began to rise - this is the set up. Even though the market was set up for a trade, the safe play was to wait for 15 exponential strategy average to start to trend and for the price to be well above the bands. The market then pulled back forming resistance. This resistance area is what we are looking for. A break of the resistance is the final confirmation that we trading a high probability trade. The entry is made on a breach of the previous resistance with an initial stop just below the support area that formed. Starc Bands with bollinger Bands. Chart Points The red line is where the strategy was in consolidation. About Privacy Policy Sitemap VAT This website uses cookies. Cookies improve the user experience and help make this website better.
Envelopes
Envelopes
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