Envelope trading strategy is the very profitable trading strategy in the forex industry. Professional short term traders use this trading strategy to trade the major pairs in the financial market. In this system, experts use 200-day moving average and envelope indicator. Stochastic is also used which acts as the overbought and oversold indicator of the major pairs.
This system can only be traded in in the shorter time frame and high volatile major pairs. However, the best result is found when the system is traded with GBPUSD in the 15-minute time frame. Let us see how to professional trader trade the 15-minute time frame in GBPUSD:
Figure: Trading the 15-minute time frame in GBPUSD using advanced envelope trading strategy
The 200-day moving average acts as the trend indicator in this system. When the price is trading above the moving average traders it means the prevailing trend is an uptrend whereas price trading below the 200 days moving average indicates the downtrend. The envelope indicator is much more similar to the Bollinger band indicator with just one exception. It tends to generate extremely high-quality signals in the shorter time frame compared to the Bollinger band. Professional traders sell at the envelope resistance with a tightly fixed stop loss of 12 pips and buy at the envelope dynamic resistance when the price is trading above the 200 days moving average.
In the figure, the price is trading well below the 200-day moving average which means perfect downtrend. Traders look for selling opportunity in the dynamic resistance level. Once the suitable entry point is found in the dynamic resistance level traders open their short trade with a tight stop loss. Traders should not trade this advanced envelope trading strategy in the event of the major economic news release. It’s imperative that trader’s use proper money management while trading this system.