Description
The envelope channel refers to the upper and lower bands around the price bars, generated by a moving average and a predetermined distance above and below the moving average. The distance can be calculated through a percentage variable above and below the moving average (i.e. 2%, 5% or 10%), or the number of standard deviations (i.e. 1, 2, 3, as in Bollinger waves).
Unlike traditional price channels, the envelope channel is based on standard deviation changing over time in response to a security's volatility, widening or narrowing bands.
This indicator can be used with various techniques, as long as they work together to form upper and lower bands surrounding the price of the stock.