Envelope Trend Trading System For MT4
The Envelope Trend Trading System For MT4 is a trend following system which is especially designed to trade on the H4 time frame. According to the inventor of the system you can trade with it on any trading instrument.
The system uses 4 indicators to calculate the entry signals which are called Envelope, Arrows channel signal, Trend Bars and the Support and Resitance indicator by Barry.
You can detect the direction of the with two methods:
1. You can read the color of the Trend Bars Indicator. Green color signals that the market is in an uptrend while red color signals a downward trend
2. You could also interpret the angle of the lines of the Envelope indicator. If the lines of the envelope indicator are rising then you can interpret the price action as an upward trend. If the slope of the lines is pointing downward then you can see that as a downward trend.
Select one of these two possibilities to determine the direction of the trend. We have now discussed the first component, detecting the direction of the trend, of the Envelope Trend Trading System For MT4.
The remaining parts of the system will be explained with chart examples so that you will get a clear picture of the entire system.
Envelope Trend Trading System For MT4 Buy Entries
For a valid buy entry, you must spot an upward trend. The Trend Bars indicator needs to draw green values or the lines of the Envelope indicator must move upwards.
Now you wait for the price to make a deep pullback near to the lower line of the Envelope indicator. The deeper pullback gives you a better chance for a bigger upward move near to the upper line of the Enveloper. Please note that the upward move to the upper line of the Envelope is your profit potential. So, a very deep pullback to the lower line is preferred before you will search for an entry signal.
The following screenshot shows four of those deeper pullbacks during an upward trend:
After the price made a deep pullback you wait until you see a green upward arrow. You can now buy immediately and put the stop loss at the support price level which is drawn by the indicator Support and Resistance by Barry (if that level is already drawn). Or, as the inventor of the system suggests, you can place the stop loss 100 to 150 below of the actual price. Remember, we are trading on the H4 time frame where the stops and targets can mean bigger pip distances.
If you want a tighter stop which will also make a lot of sense, you can wait for a broken resistance level during a deep pullback. Remember, that the indicator from Barry draws support and resistance levels. A broken resistance level as an entry signal makes a lot of sense because the price makes a new high which can indicate the start of a new upward move. The new upward move is your anticipated profit move. Another advantage of waiting for a broken resistance is that you will have a recent support price level which you can use a tighter stop distance (probably tighter than the 100 to 150 pips mentioned before).
The following screenshot shows two entry signals which developed after the resistance price level was broken to the upside. You can also see logical stop loss levels at the recent support price level:
In the screenshot above I have also highlighted possible areas for profit taking. If the price approaches the upper line of the Envelope Indicator then it makes sense to take profits and wait for the next good setup.
The inventor of the system suggests that place the target between 100 and 300 pips away from the entry price level. This is also a good advice especially if you have limited time to watch the markets and pinpoint the exits by watching the price action.
I will now show you an example when you should avoid a buy entry although you saw a deep pullback and a broken resistance level. If the buy entry signal comes too late, which means that the anticipated profit move is small in relation to the stop distance, then the risk / reward ratio of the trade is not good. You should skip such setups and patiently wait for the next setup.
The following screenshot shows a buy signal that you should skip because of the bad risk/reward:
Envelope Trend Trading System For MT4 Sell Entries
For a valid sell entry, the market needs to be in a downward trend. As explained above, use the Trend Bars indicator or the Envelope indicator to detect the direction.
Once a downward trend has developed, you need to wait until the price makes a deep pullback to the upside near the upper line of the Envelope Indicator. You can see two deeper pullbacks to the upside during a downward trend in the following screenshot:
You can then go with the suggestion of the inventor of the system and enter a sell trade as soon as a red downward arrow gets drawn. You can then place the stop between 100 and 150 pips above of the actual price.
You can also wait until a support price level (drawn by the Support and Resistance indicator from Barry) gets broken to the downside and then enter a sell trade. In that case you can use the recent resistance level as a well-defined stop loss level. The recent resistance gives you most probably a tighter stop loss distance than the 100 to 150 pips of the standard rules.
The following screenshot shows two entry signals based on broken support price levels during a deeper pullback to the upside within a downward trend:
The target zone of the trade can be selected near the lower line of the Envelope indicator. This makes a lot of sense because at the lower line the trend is in an oversold condition and you can expect at least another pullback to the upside (or even a complete change of the direction of the trend).
The inventor of the system suggest to place the target at a fixed distance between 100 and 300 pips away from the entry price level.
Download the complete system description and the files here: