Keltner Channel
Candlefocus EditorThe exponential moving average of a Keltner Channel is usually set at 20 periods and can be adjusted depending on trading preferences. The same is true of the upper and lower bands, which are typically placed two times the ATR above and below the EMA. Traders consider a breakout from the upper Keltner Channel to signify a move to bullish territory, while a breakdown from the lower band denotes a bearish trend. The angle of the Keltner Channel is also viewed as an indicator for whether the trend is strengthening or weakening.
Oftentimes, the price of an asset may oscillate between the upper and lower Keltner Channel bands, thus providing strong support and resistance levels for measured moves. Keltner Channels can thus be used for multiple types of trading, including breakouts, reversals and scalping, among others.
In summary, Keltner Channels are volatility-based bands that are calculated using the exponential moving average and average true range of an asset’s price. Trading signals are generated when the price breaches either the upper or lower band. Furthermore, the angle of the Keltner Channel can provide insight into the direction of the trend. Finally, the Keltner Channels also provide traders with resistance and support points when the market oscillates between the bands. As such, Keltner Channels are a useful tool for various forms of trading.