MT5 indicator "envelope" is a technical analysis tool used to identify potential price trend reversals and overbought or oversold conditions in the market. The envelope indicator consists of two lines plotted on the price chart - an upper envelope and a lower envelope.
The upper envelope line is calculated by adding a specified percentage (usually between 1% to 10%) to the moving average of the price, while the lower envelope line is calculated by subtracting the same percentage from the moving average. The moving average used can be either simple moving average (SMA) or exponential moving average (EMA), depending on the user's preference.
The distance between the upper and lower envelopes represents the volatility of the market. When the price moves close to the upper envelope, it indicates that the market is overbought and there may be a potential trend reversal to the downside. Conversely, when the price moves close to the lower envelope, it suggests that the market is oversold and there may be a potential trend reversal to the upside.
Traders often use the envelope indicator in conjunction with other technical analysis tools, such as momentum indicators or oscillators, to confirm signals and improve the accuracy of their trades.
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