LEARN ENVELOPES IN 3 MINUTES – BLOCKCHAIN 101 

Introduction:
In cryptocurrency and stock trading, technical indicators are essential tools that assist traders in making decisions. The Envelopes indicator is a widely used tool that helps traders identify potential reversal points in price trends. In this article, we will delve into the concept, application, and how to use the Envelopes indicator to enhance the effectiveness of trading strategies.

What is the Envelopes Indicator?

The Envelopes indicator consists of two lines that are usually positioned above and below the price chart. These lines are derived from a moving average (MA) and represent the upper and lower limits of the price. Specifically, the upper and lower boundaries of the Envelopes are typically calculated by adding and subtracting a percentage deviation from the specified moving average.

Calculation Method of the Envelopes Indicator

1. Choose a Type of Moving Average:Commonly used moving averages include Simple Moving Average (SMA) and Exponential Moving Average (EMA).
2. Set the Deviation Percentage:Typically, a range of 2% to 5% is used for the deviation, depending on market volatility.
3. Calculate the Upper and Lower Boundaries:
   Upper Boundary = Moving Average + (Moving Average × Deviation Percentage)
   Lower Boundary = Moving Average – (Moving Average × Deviation Percentage)

How to Use the Envelopes Indicator

1. Identify Overbought and Oversold Regions:When the price approaches the upper boundary, it indicates that the market may be overbought; conversely, when the price approaches the lower boundary, it indicates that the market may be oversold.
2. Trend Reversal Signals:A price crossing above or below the boundaries can be seen as a potential trend reversal signal. For instance, when the price breaks above the upper boundary, it may suggest a buying opportunity; conversely, when it breaks below the lower boundary, it may suggest a selling opportunity.
3. Combine with Other Indicators:To enhance the accuracy of trading strategies, the Envelopes can be used in conjunction with other technical indicators (such as RSI or MACD) to confirm trading signals.