Keltner channels
A moving average of closes with volatility bands; price beyond a band marks a stretched move.
Keltner channels draw a middle line, an exponential moving average of the close, with a band above and below it set at a fixed multiple of the average true range. True range is each bar's high-low span, widened to reach the prior close when a gap opens. The average true range smooths that with Wilder's method, so band width tracks recent volatility in price units: it widens in fast markets and narrows in quiet ones.
How to read it
- All three lines sit on the price chart, so read them against the candles.
- A middle line that keeps price on one side of it points to the trend's direction.
- Band width is a volatility gauge: wide bands mean recent bars had large ranges, narrow bands mean quiet trading.
- On one-minute bars price crosses a band often, so a touch is a prompt to look, not a trigger.
What it outputs
- Middle (EMA of close)
- Exponential moving average of the close. The bands are drawn around this line.
- Upper band
- Middle plus the multiplier times the average true range. Price above it is stretched above the average by more than the multiplier times recent bar ranges.
- Lower band
- Middle minus the multiplier times the average true range. Price below it is stretched that far below the average.
Settings
- EMA window
- Length of the middle line. Raising it smooths the line and slows its reaction to turns; lowering it makes the line hug price more tightly. The bands move with the middle line.
- ATR window
- Bars used to measure the true range that sets band width. Lowering it lets the bands jump with each volatile bar; raising it keeps them steadier and slower to widen.
- Multiplier
- Band distance from the middle, in average true range units. Raising it widens both bands so price touches them less often; lowering it tightens them so price touches them more. The middle line does not change.
Pitfalls
- The middle line is an EMA of close, so it lags turns and the bands lag with it.
- On SPY one-minute bars the bands sat only about 0.15 to 0.3 dollars from the middle between the 5th and 95th percentiles, so price crosses them constantly.
- The first ten bars or so carry no values while the average true range fills its window.