MA Envelopessss

Beginner Questions
1

Was learning about MA envelopes. It said when a price closes above the envelope, buy. Does this if the price closes above the envelope in an uptrend, buy? and visa versa

2

yes, some websites do say that

others say that when the price closes above the envelope, that’s a sign of being on the way to “overbought,” so you should sell

some people (especially the ones who just want to try to sound like experts and be “covered either way”) say that it depends on what your settings are (be wary of people who say that! i won’t offend them by mentioning it because they’re the ones who don’t actually read the threads they reply to anyway)

here’s the reality: moving average envelopes are (just like Bollinger bands, Keltner channels and MA channels of the highs/lows) just another way of displaying a channel built (in whatever method) around a moving average to make it into something wider (maybe much wider) than “just a line”

there are, however, two things that might help you about all of this …

  1. learn that indicators of this kind (i.e. based around moving averages) are based entirely on historical price information and have NO predictive powers at all - they may be good for displaying trends (i use them for that, myself) but as trade entries they are completely useless

  2. learn that there are other kinds of indicators NOT based on moving averages which may be more helpful to you, such as Donchian channels which are both similar and different: they are based on ACTUAL support and resistance rather than on substitutes for support and resistance :wink:

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3

Whatever clever clever strategy you read about, remember that there are really only two strategies - buy because price has been rising, or buy because price has ben falling.

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4

You’re forgetting about the 2 most common strategies in retail forex. Sell because price has been rising and buy because price has been falling.

You’ll probably understand why so many people lose when you think about that.

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5

I genuinely believe most new traders start with one simple idea, which is to find a chart in which price has made a 45 degree slope from bottom left to top right, and then immediately get short. Its hard to even call this a strategy.

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6

if it is, it’s an “account depletion strategy” :crazy_face:

if they simply did the opposite and entered a long position, at least they’d have the odds slightly on their side instead of against them

i suppose it’s counterintuitive for people, though: they imagine that a recently-formed trend is the most likely to continue (the opposite’s actually the case) and that a well-established one is “therefore” more likely to reverse than to continue - and all the people posting stuff about “mean reversion” and “cost averaging” don’t exactly help them :grimacing:

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7

so why is this being taught on the baby pips course?

8

so should i ignore what the baby pips course says which is it buy if the upper envelope is breached and visa versa?

9

I haven’t seen what’s on the bp course.

I do know there are ways of taking a counter-trend view of price action, while managing the risk - I’m doing it myself. But a lot of new traders are either doing it badly or failing to manage risk. for interest take a look at your broker’s sentiment data next time you see some pair with a significant downtrend: you will generally find that most clients’ open positions are long. DailyFX.com actually use this kind of data as a negative trade indication. After all, most traders are losing money, and if you do what most traders are doing, you’ll get the same result.

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10

i have looked, but i can’t find it, sorry - could you post a link to it, please? i’ll happily comment after seeing it!