I have received questions from you regarding my envelope forex system and I am glad you like it. I’ll try to help you with this article.
Firstly if you have doubt as to setting envelopes using high or low, it is of no problem to use median price on it. If you are in doubt, apply using median price for the EUR/USD daily chart.
Look at the example on the EUR/USD and my settings for the envelope in this case. In this particular trend, it is really difficult to see where to buy at the bottom of the envelopes. No good candlestick or high volatility. I do prefer to wait for a better candlestick confirmation above the 21 Ema like the ones in the circles. Note that after coming from the bottom of the envelope, the price cuts the 21 Ema and starts to generate good candlestick confirmations rejecting lower prices. That is my signal to buy in this example inside the circled areas. The target for me is when the price touches the top of the envelope or the bottom if you are in a bearish trend. Alternatively you can trail your stop loss each time you reach 1x your initial risk and let the trade run.
The higher degree of an uptrend, the better the signals. For this case which is a bullish trend, you need to look to buy in at the bottom only! Never at the top of the envelope. Notice the 21 Ema serves as a good support most of the time.
The perfect signal that I like to trade is the following that you can see in the chart, the blue and the yellow circles around the 21 Ema slightly becoming bullish after a bearish correction. For me that is a golden setup worth the risk.
As many of you asked, the 21 Ema can serve you to identify the trend too.
In another example, the CAD/CHF :
A perfect example of a bearish trend and a well developed envelope set.
The red arrows are the sell signal. In this example, the candlestick at the top of the envelope channel allows us to trade. The candlesticks show rejection of higher levels around the upper band of envelope and produced good sell signals. As well as the signals below the 21 Ema which we discussed in the EUR/USD example above and we have here too but for the down side this time.
The green arrows show good entry points. The shape of the candlesticks can give you a clue if it is possible. The bigger the candle’s shadow, the better the pattern.
Following the trend is always the better trade.
See? It fits but not as good as setting the envelopes to lower price. Adjust it until you feel comfortable with. This is not an indispensable rule.
Now some settings for the major instruments you asked me for and settings I am using today on Metatrader4:
Apply the price of the EMA as the same as the Envelopes. As long as you can see the envelopes fit well in the chart that you feel good it’s ok. Another clue is to look if your EMA is working good as a support or resistance is observing if the price reacts to it.
Hope I was of help!
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