Forex trend envelopes are technical analysis tools used by traders to identify the potential direction and strength of market trends. They consist of two lines that create a band around a central moving average, which helps traders to visualize the range within which the price of a currency pair is likely to oscillate. These envelopes are typically set at a fixed percentage distance above and below the moving average, forming an upper and lower boundary.

The concept behind trend envelopes is to capture the majority of price movements, filtering out minor fluctuations and highlighting significant trends. When the price moves above the upper envelope, it signals that the currency pair might be overbought, suggesting a potential selling opportunity. Conversely, when the price drops below the lower envelope, it indicates that the currency pair might be oversold, hinting at a potential buying opportunity.

Trend envelopes help traders to spot trend reversals, confirm trend direction, and identify overbought or oversold conditions. By adjusting the percentage distance based on market volatility, traders can fine-tune the sensitivity of the envelopes to better match the trading environment. Overall, forex trend envelopes are valuable for enhancing trend-following strategies and improving trade timing decisions.