The envelope indicator, often used in technical analysis, consists of two lines plotted above and below a security's price chart. These lines, derived from a moving average, create a channel that encompasses the price movement. Typically, the upper and lower bands are set at a fixed percentage above and below the moving average. The envelope helps traders identify potential overbought and oversold conditions. When prices touch or exceed the upper band, it may signal overvaluation, suggesting a potential reversal or corrective action. Conversely, touching or falling below the lower band may indicate undervaluation, signaling a potential buying opportunity.