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Questions and Answers
What is the primary premise of the Envelopes indicator?
What is the primary premise of the Envelopes indicator?
When the price crosses the Upper Envelope, what is the recommended trading position?
When the price crosses the Upper Envelope, what is the recommended trading position?
What does the Keltner Channel primarily measure?
What does the Keltner Channel primarily measure?
In the calculation for the Keltner Channel, what does 'ATR' stand for?
In the calculation for the Keltner Channel, what does 'ATR' stand for?
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What is indicated when the price jumps below the Lower Envelope?
What is indicated when the price jumps below the Lower Envelope?
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Which statement about the behavior of the Envelopes indicator in trending markets is true?
Which statement about the behavior of the Envelopes indicator in trending markets is true?
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What does the Exponential Moving Average (EMA) represent in the context of the Envelopes indicator?
What does the Exponential Moving Average (EMA) represent in the context of the Envelopes indicator?
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How is the Upper Envelope calculated?
How is the Upper Envelope calculated?
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The Envelopes indicator signals a selling position when the price crosses the Lower Envelope.
The Envelopes indicator signals a selling position when the price crosses the Lower Envelope.
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The Keltner Channel uses the Average True Range (ATR) in its calculations.
The Keltner Channel uses the Average True Range (ATR) in its calculations.
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The Envelopes indicator is more effective in trending markets than in sideways movement.
The Envelopes indicator is more effective in trending markets than in sideways movement.
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In the Keltner Channel, the Upper Envelope is calculated by adding ATR multiplied by a deviation to the EMA.
In the Keltner Channel, the Upper Envelope is calculated by adding ATR multiplied by a deviation to the EMA.
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When the price crosses above the Upper Envelope, it indicates that the stock is oversold.
When the price crosses above the Upper Envelope, it indicates that the stock is oversold.
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The lower Envelope in the Envelopes indicator suggests a buying opportunity when crossed by price.
The lower Envelope in the Envelopes indicator suggests a buying opportunity when crossed by price.
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The parameter for moving averages affects the volatility displayed by the Envelopes indicator.
The parameter for moving averages affects the volatility displayed by the Envelopes indicator.
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A deviation of 2 in the Keltner Channel would involve the standard deviation, expressed as 2*.
A deviation of 2 in the Keltner Channel would involve the standard deviation, expressed as 2*.
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Study Notes
Envelopes Indicator
- This indicator is based on the premise that prices oscillate around their moving average.
- It can be used with various moving average parameters.
- Volatility decreases as the parameter decreases, approaching real price volatility.
- At this stage, false signals may occur.
Envelope Calculation
- Upper Envelope = EMA x + X%
- Lower Envelope = EMA x - X%
- EMA x = Exponential moving average with parameter x
- X = Percentage deviation from moving average
Envelope Trading Signals
- Price crossing the Upper Envelope signals a potential selling opportunity as the price is likely to return to its moving average.
- Price crossing the Lower Envelope signals a potential buying opportunity as the price is likely to return to its moving average.
- This indicator is most effective when the market is trending sideways.
- In trending markets, the indicator moves within the range bounded by the moving average and the envelope, following the trend direction.
- Buying position happens when the price pulls back from the upper envelope to the moving average.
- Selling position happens when the price pulls back from the lower envelope to the moving average.
Keltner Channel Indicator
- This indicator measures volatility, based on the typical Envelope indicator.
- It is based on volatility.
Keltner Channel Calculation
- KC centre = EMA x
- KC upper envelope = KC centre + (ATR * Deviation)
- KC lower envelope = KC centre - (ATR * Deviation)
- ATR = Average True Range
- Deviation = A selected number (e.g., 2* – means two times the standard deviation)
- EMA x = Exponential moving average with the parameter x
Keltner Channel Trading Signals
- Overbought condition: Price "jumps" above the Upper Envelope.
- Oversold condition: Price "jumps" below the Lower Envelope.
- Price movement outside the channel indicates a tendency to return to the moving average.
- "Price stagnation" in one side of the Keltner Channel suggests the start of a new strong trend.
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Description
Explore the Envelope Indicator, which is based on the concept that prices oscillate around their moving average. This quiz covers its calculation, trading signals, and effectiveness in different market conditions. Test your knowledge on how to utilize this tool for trading decisions.
