What Is Keltner Channel?
Keltner Channels are bands plotted around an EMA (typically 20-period) at a distance of N times the ATR (typically 2). The middle line is the EMA, the upper band is EMA + 2*ATR, the lower band is EMA - 2*ATR.
They look similar to Bollinger Bands but differ in calculation: Bollinger uses standard deviations of price; Keltner uses ATR. Keltner bands are smoother because ATR responds less aggressively to outliers. In practice, when both are plotted together, Bollinger reacts faster while Keltner is calmer.
A common strategy: 'squeeze' setups occur when Bollinger Bands move inside Keltner Channels, indicating low volatility that often precedes a directional breakout. This Linda Bradford Raschke-popularized setup is one of the more reliable volatility-based pattern signals.
Related terms
- Bollinger Bands — Volatility bands plotted at standard deviations above and below a moving average.
- ATR (Average True Range) — Volatility indicator measuring the average range of price movement per candle.
- EMA (Exponential Moving Average) — Moving average that gives more weight to recent prices, reacting faster than a simple average.
- Volatility — A statistical measure of how much an asset's price varies over a period.