UK Accounting Glossary
Keltner Channel is a technical analysis indicator consisting of a volatility-based envelope that measures the movement of stocks in relation to an upper and lower moving-average band.
The indicator is named after Chester W. Keltner (1909–1998) who described it in his 1960 book How To Make Money in Commodities.
The Keltner channel is a market analysis indicator that measures the movement of stocks in relation to a central moving average line, as well as upper and lower channel lines. The Keltner channel indicator is primarily used by savvy investors to predict market trends. There are two bands on a Keltner channel, which are drawn above and below an exponential moving average. The Keltner channel is based on the Average True Range. An overbuy is indicated on the Keltner channel when prices rise above the upper band, and an oversell is indicated on the Keltner channel when prices fall below the lower band. Because the Keltner Channel was created to take advantage of volatility swings and follow market trends, it is not effective in sideways markets. The Keltner channel is named after Chester W. Keltner, a grain trader and author of the 1960’s book How to Make Money in Commodities.
The Keltner Channel is similar to Bollinger Bands in that there is a central line drawn on the chart which represents a moving average of the price, and upper and lower volatility-based channel lines.
The lines above and below the centerline are drawn a distance away with a distance which is the simple moving average of the past 10 days’ trading ranges (High – Low).
There are two ways to interpret the Keltner channels. The upper and lower channel lines can be used to establish a breakout/trend, or they can be used as overbought/oversold signals. In either case, other indicators should be used to confirm the signal.
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This glossary post was last updated: 10th February 2020.