Keltner Channels

Keltner Channels is a volatility-based envelope indicator developed by Chester Keltner and later refined by Linda Bradford Raschke. It consists of three lines: a middle line (exponential moving average), an upper channel, and a lower channel. Unlike Bollinger Bands which use standard deviation, Keltner Channels use the Average True Range (ATR) to set the channel width, making them smoother and less prone to sudden expansions.

Keltner Channels are calculated using an EMA and ATR:

Middle = EMA(close, N)
Upper  = EMA(close, N) + K * ATR(N)
Lower  = EMA(close, N) - K * ATR(N)

Where N is the period (default 20) and K is the ATR multiplier (default 2.0).

Since ATR changes more gradually than standard deviation, Keltner Channels produce smoother bands that are less reactive to sudden price spikes.

• ATR-based width — Smoother than Bollinger Bands, less prone to sudden expansion
• Trend identification — Channel slope and price position indicate trend direction
• Squeeze detection — When Bollinger Bands move inside Keltner Channels, it signals a squeeze
• Breakout signals — Price closing outside the channels often indicates a strong move

Buy signals

• Price closes above the upper Keltner Channel (bullish breakout)
• Price pulls back to the middle line and bounces (trend continuation)
• Keltner Channel squeeze resolves to the upside (Bollinger Bands expand outside Keltner)

Sell signals

• Price closes below the lower Keltner Channel (bearish breakout)
• Price rallies to the middle line and fails (trend continuation)
• Keltner Channel squeeze resolves to the downside

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | EMA and ATR calculation period | | Multiplier | 2.0 | ATR multiplier for channel width |

| Component | Description | |-----------|-------------| | KELTNER_UPPER(20) | Upper channel value | | KELTNER_LOWER(20) | Lower channel value |

| Condition | Description | |-----------|-------------| | close > KELTNER_UPPER(20) | Price above upper channel (breakout) | | close < KELTNER_LOWER(20) | Price below lower channel (breakdown) | | close cross_over KELTNER_UPPER(20) | Bullish channel breakout | | close cross_under KELTNER_LOWER(20) | Bearish channel breakdown |

• The "Keltner Squeeze" (BB inside Keltner) is one of the most popular volatility setups
• Keltner Channels are smoother than Bollinger Bands — better for trend-following strategies
• Use the middle line as a dynamic support/resistance in trending markets
• Wider multiplier (2.5-3.0) produces fewer but more significant breakout signals
• Combine with momentum indicators (RSI, MACD) to confirm breakout direction
• Price consistently staying above/below the middle line confirms trend bias