Keltner Channels
ATR-based bands around an EMA, similar to Bollinger Bands but smoother — most useful when combined with Bollinger Bands to detect volatility squeezes.
Description
Keltner Channels were originally created by Chester Keltner in the 1960s and later modified by Linda Raschke into their modern form. The indicator wraps an exponential moving average in two ATR-based bands. Like Bollinger Bands, the channels expand and contract with volatility — but because they use ATR rather than standard deviation, they tend to be smoother and less reactive to single extreme candles.
How It Works
Middle Line = 20-period EMA. Upper Channel = EMA + 2 × ATR(10). Lower Channel = EMA − 2 × ATR(10). The ATR period (10) and multiplier (2.0) are common defaults but vary by trader. Because ATR itself is a smoothed measure of volatility, Keltner Channels change shape more gradually than Bollinger Bands.
How to Read It
Price above the upper channel signals strong upside momentum; below the lower channel signals strong downside momentum. The most popular use case combines Keltner Channels with Bollinger Bands for the Bollinger Band Squeeze: when Bollinger Bands contract inside the Keltner Channels, a very tight, low-volatility period is underway — a breakout is likely imminent. The direction of the breakout must be confirmed by other means.
Common Uses
- Volatility squeeze detection (Bollinger Bands inside Keltner Channels)
- Trend following when price rides outside the channels
- Intraday support and resistance levels
- Stop placement at the channel boundaries
Caveats
Keltner Channels largely duplicate Bollinger Bands for most purposes; the main differentiated use case is the Bollinger Squeeze setup. In isolation, they have the same weaknesses as any channel indicator: false breakouts in choppy conditions, and “walking the band” during strong trends. Parameter selection (multiplier and ATR period) significantly affects channel width.