Keltner Channel

Keltner Channel is a technical analysis indicator consisting of a volatility-based envelope that measures the movement of stocks in relation to an upper and lower moving-average band.

Keltner Channel

Keltner Channel is a technical analysis indicator consisting of a volatility-based envelope that measures the movement of stocks in relation to an upper and lower moving-average band.

The indicator is named after Chester W. Keltner (1909–1998) who described it in his 1960 book How To Make Money in Commodities.

 

Calculation of Keltner Channel

The Keltner Channel is similar to Bollinger Bands in that there is a central line drawn on the chart which represents a moving average of the price, and upper and lower volatility-based channel lines. 

The center line is calculated as follows:

Keltner Channel center line formula:  Calculation of the 10-day Simple Moving Average of the typical daily price.

Keltner Channel center line formula:  Calculation of the 10-day Simple Moving Average of the typical daily price.



The lines above and below the center line are drawn a distance away with a distance which is the simple moving average of the past 10 days' trading ranges (High - Low).

Application of Keltner Channel

There are two ways to interpret the Keltner channels.  The upper and lower channel lines can be used to establish a breakout / trend, or they can be used as overbought/oversold signals.  In either case, other indicators should be used to confirm the signal.



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