An indicator that puts an exponential moving average in the middle and draws two lines above and below it, set apart by the usual daily range (ATR), to show the price’s “normal range”.
- Weapon tier
- Advanced
- Slots used
- On chart 3/6
- Created by
- Chester W. Keltner · 1960
Concept
The middle line (Middle) is the exponential moving average of the last 20 closes. The upper line (Upper) and lower line (Lower) sit a multiple of “how much a candle usually moves” (ATR) away from it.
When the price swings hard, ATR grows and the channel widens; when it is quiet, the channel narrows. It looks like Bollinger Bands, but it measures width by how far candles move rather than by how scattered the closes are, so the lines move more smoothly.
- Middle
- Upper
- Lower
Charts by TradingView Lightweight Charts™
80 candles with the three Keltner Channels lines and volume. Early on, the price moves sideways inside a narrow channel, and at candle 60 (yellow vertical line) it closes above the Upper line. After that the price climbs along the Upper line, and the channel turns up and widens. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
The yellow vertical line is the first candle that closed above the channel. This chart was picked because the breakout kept going. It is just as common for the price to close above and then slip right back into the channel. Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
How it is calculated
Middle = the exponential moving average of the last 20 closes. It gives more weight to recent candles.
Find ATR: for each candle, take the largest of “high − low”, “the gap between the previous close and the high” and “the gap between the previous close and the low”, then average it over the last 10 candles.
Upper = Middle + ATR × 2, and Lower = Middle − ATR × 2.
Parameters
| What it sets | Name in the game | Default | Range |
|---|---|---|---|
| Candles for the middle exponential moving average | period | 20 | 2 – 200 |
| Candles used for ATR (the usual range) | atrPeriod | 10 | 2 – 100 |
| Channel width (multiple of ATR) | multiplier | 2 | 0.5 – 10 |
Trading ideas
Breakout: when a price that has stayed inside the channel for a long time closes above the Upper line, it is commonly read as an upward move starting. The chart on this page shows that scene. A close below the lower line is read the other way.
Following a trend: in a rising trend, some traders treat the trend as alive while the price stays above the Middle line, and as weakening once a candle closes below the Middle line.
Common traps
- When the price moves sideways, it often pokes just outside a line and comes back. Buying every breakout adds up to many small losses.
- The channel does not tell you the direction in advance. It only tells you after the price has left it.
- None of these are sure signals. Read them together with the trend (lesson 2) and volume.
In the game
- “Keltner Channels” is an “Advanced” weapon and uses 3 “On chart” lines (limit 6).
- Together with the two Simple Moving Average lines in the starting setup (2 lines), it uses 5 lines, leaving 1 free.
- The space between the lines is not filled; only the three lines are drawn.
Related indicators and lessons
- Bollinger Bands — An indicator that uses three lines, a moving average in the middle and a band above and below it, to show how much the price is swinging compared with usual.
- ATR — An indicator that shows, in price units, how much a single candle usually moves. It does not say which way; it only measures the size of the swings.
- Envelope — An indicator that draws lines a “fixed percentage” above and below a moving average, to show how far the price has moved away from the average.
- Donchian Channel — An indicator that traces the highest and lowest prices of a recent period, showing the moment the price leaves its “range so far”.
- Standard Deviation — An indicator that shows, as a single number, how widely recent closes are scattered around their average. The larger it is, the harder the price is swinging.
- Chaikin Volatility — A volatility indicator that shows, as a % change, how much the gap between each candle’s high and low has been widening (or narrowing) lately.
- 3. Moving averages
- 2. Trends and sideways moves