Extra indicators
Keltner Channels
An exponential average with bands set a multiple of ATR away: a smoother cousin of Bollinger Bands.
The idea in plain words
The channel shows the normal swing around the trend. A close outside the channel signals an unusually strong move; a return to the middle line, a normal pullback.
How it is calculated
Middle: 20-period EMA. Bands: ± 2 × ATR(10).
Middle = EMA(close, 20)
Upper = Middle + 2 × ATR(10)
Lower = Middle − 2 × ATR(10)How to use it
- Trend: closes above the upper band show strength; buy pullbacks to the middle line.
- Squeeze: Bollinger Bands inside Keltner Channels mark extreme quiet (the "TTM squeeze" idea).
Drawing conclusions
- Because ATR changes slowly, the bands are smoother than Bollinger Bands.
Example
Gold closes above the upper Keltner band three days running: a strong uptrend; the first pullback finds support at the EMA.
Prices in examples are illustrative.
Watch out for
- Like any band, "touch the band, take the other side" fails in trends.
A little history
Chester Keltner described the original in 1960 in "How to Make Money in Commodities"; the ATR-based version used today was popularised by Linda Bradford Raschke.
Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.