Envelope Channel

The most boring station on basic cable.

In finance, an envelope channel is a technical indicator where two measures form a boundary around a stock’s recent movement. Like...the stock is running through a channel, or is stuck in an envelope. (English majors would probably nitpick the name as a mixed metaphor).

Stocks move around day to day, usually in a seemingly random way. A little bit up today, a little bit down tomorrow...maybe three days up and then two days down. Often a pattern doesn’t seem obvious in the moment.

Technical traders look at these movements and attempt to predict future stock performance by teasing out trends. One of the techniques they use is the envelope channel.

A technical trader will look at some indicator...recent highs and recent lows, or some pair of moving averages. They will then use these as the boundaries of the channel. The stock price is bouncing around in that channel.

If the stock ever breaks out (moves above the upper boundary or below the lower one), that could indicate a change in the trend.