Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Reading EnvelopesThe envelopes indicator consists of 2 simple moving averages (or SMAs) forming a pattern similar to a Channel formation where the upper and lower SMAs act as boundaries. However, instead of a straight line, the envelope is a ridged and flexible line that is plotted by the Moving Average of the price movement caused by market volatility.
Formula to determine Upper Band and Lower Band of an EnvelopeThe calculation of the upper and lower bands in an envelope is based on the average taken from the Moving Average, which is set by the volatility of the asset. The formula for the upper and lower bands are as follows: Upper Bar = SMA (Close, N)*[1+k/1000] Bottom Bar = SMA (Close, N) * [1-K/1000] Where: SMA = Simple Moving Average N = Averaging Period K/1000 = the range of fluctuations moving from the average (this is measured in basis points)
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