Keltner Channels

Keltner Channels are volatility-based envelopes set above and below an exponential moving average. They look and act similar to Bollinger Bands, but instead of using standard deviations (like the Bollingers), keltners use the Average True Range (ATR) to set their channel distance. (Snazzy…)

Because it’s based on ATR and similar again to Bollingers, Keltners expand and contract with volatility, but it doesn’t get a volatile as the Bollinger Bands do in terms of size and shape. 

Right… but what do they tell me?

Well, a couple of things

  • Overbought and Oversold levels
  • It can help us to identify potential new trends.
  • Reversals
  • Channel breakouts
  • Support and resistance

Similar to Bollinger Bands, we can get a relatively quick understanding now how the market is looking dependant on where price action is occuring relative to the position and angle of these channels.

Direction of Trend

See how on the image below, the direction the keltners are travelling help us to identify market direction. Because it has an exponential moving average as it’s foundation, the Keltner Channel indicator are a trend following indicator. 

  • When the Keltners are pointing down, we are in a down trend
  • The opposite for when they are pointing up, we are in an uptrend.

It’s from there that we can start using the bands and channels to identify levels of potential support and resistance. 

Image showing how angle of the Keltners shows trend direction (Up = bull / down = bear)

support and resistance levels

Now that we can identify direction of trend, we can also identify where potential levels of support and resistance will be. Also ensure you are looking at the channels in relation to where price action is occuring. 

  • If price is below the bands, we use them as forms of resistance
  • When price is on top of the bands, we look at them as forms of support. 

Pretty simple right? Well… that’s because it is. 

what about the middle line?

This middle line is pretty significant since it tends to act as a pullback level during ongoing trends.

  • In an UPTREND, price action tends to be confined in the UPPER HALF of the channel, that is between the middle line as support and the top line as resistance. 
  • In a DOWNTREND, price action usually hangs around the BOTTOM HALF of the channel, finding resistance at the middle line and support at the bottom line. 
  • In a RANGING MARKET, price usually swings back and forth between the top and bottom lines.

Trading Breakouts

When trading with Keltner, pay strong attention when price starts breaking out from the channels, because this can tell us where price may be headed.

  • If price starts to break and close outside the top of the bands, price will usually continue up
  • If price starts to break down and below the bottom band, price will usually continue going down

Trading Breakouts

Tenken Sen (Conversion line) 

The Tenkan Sen or the conversion line, is similar to that of the MACD signal line in that it’s a faster “moving average” that helps to give us an idea of shorter term market trend. 

 We look to what direction the conversion line points to show us whether we are potentially headed up or down on the time frame you are trading on.

From you the image above, you can see that when we are trending on top of the conversion line, we are considered bullish and it acts as a level of support.

Conversely, when we are trading below the conversion line, we are bearish and it acts as a level of resistance, as seen above.

Difference from Bollinger Bands

There are two differences between Keltner Channels and Bollinger Bands. First, Keltner Channels are smoother than Bollinger Bands because the width of the Bollinger Bands is based on the standard deviation, which is more volatile than the Average True Range (ATR).

Many consider this a plus because it creates a more constant width. This makes Keltner Channels well suited for trend following and trend identification.

Second, Keltner Channels also use an exponential moving average, which is more sensitive than the simple moving average used in Bollinger Bands.

  • 0 – 21m – Intro/News
  • 21m – 30m – PDF Walkthrough Bollinger Bands
  • 30m – 34m – Market Scan (Breif)
  • 35m – 42m – Keltner Channels PDF Walkthrough
  • 42m – 1h15m – BB & KC Channels Live on Charts
  • 1h16m – 1h33m – Market Scan (Requested Coins)
  • 1h34m – 2h – Forex (DXY Based) 2h – End – Crypto with Spectro Indicator

* 2021 Unity Trading Group PTY LTD. The information on this website has been created by Unity Trading Group (ABN: 630163343) for general information and educational purposes only and is not to be constructed as personal or financial advice. All forms of trading carry a high level of risk, and may not be suitable for all investors. Before deciding to trade any market reported on by Unity Trading Group you should carefully consider your objectives, financial situation, needs, and level of experience. By trading, you could sustain a loss in excess of your deposited funds. Before trading ASX/FX/Cryptocurrency markets you should be aware of all the risks associated with trading. Unity Trading Group recommends you seek advice from a separate financial advisor before making any decisions based on the general information given on this website or affiliated platforms.