Keltner Channels are a well-liked technical indicator that day traders can use to assist assess the present trend and supply trading signals. The channels use volatility and average prices to plot upper, lower, and middle lines. All three of those lines move with the worth , creating a channel-like appearance.
Keltner Channels were introduced by Chester Keltner within the 1960s, but the indicator was updated by Linda Bradford Raschke within the 1980s. This later version of the indicator is that the one in use today.
Keltner Channels are a mixture of two other indicators: the exponential moving average (EMA) and therefore the average true range (ATR).
Keltner Channels are calculated with this formula-
Upper Band = EMA + (ATR x multiplier)
Middle Band = EMA
Lower Band = EMA – (ATR x multiplier)
The EMA period can be set to anything you want. For day trading, an EMA of 15 to 40 is typical.
A common multiplier for the ATR is 2, meaning the upper band will be plotted 2 x ATR above the EMA, and the lower band will be plotted 2 x ATR below the EMA.
The multiplier can be adjusted based on the asset you’re trading. While 2 is common, you may find 1.7 or 2.3, for example, provide you with better information for the exact market you trade. The higher the multiplier, the wider the channel; the smaller the multiple, the narrower the channel.