The Series of Technical Analysis Studies Chapter 4: “Keltner Channel”

What is Keltner Channel?
Originally developed by Chester Keltner in the late 1950’s, the Keltner channel indicator belongs to a family of Technical analysis tools called envelop indicators. Keltner Channels are volatility-based envelopes set above and below an exponential moving average. This indicator is similar to Bollinger Bands, which use the standard deviation to set the bands.

How does it work?
Keltner Channels are a combination of two other indicators: the exponential moving average (EMA) and Average True Range (ATR). Here is how Keltner Channels are calculated:
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.
What this calculation does is plot a line above and below the EMA, based on the ATR which is an indicator that calculates how much an asset moves on average, over a specific time frame.
How to Calculate ATR in IRIS PLUS?
Open New Chart -> Press “S” -> Select Keltner Channel -> Click on Parameter -> Enter no. of period > Click “OK”
Key points to remember:
  • The Keltner Channel indicator uses two inputs to configure the indicator. The first is the length of the exponential moving average and the second is the multiplier you would like to factor in with the ATR.
  • The general strategy is to buy during an uptrend when the price pulls back to the middle line.
  • Place a stop loss about half way between the middle and lower band, and place a target near the upper band.
  • You may need to adjust your Keltner Channel settings slightly if you trade different assets. The settings you use on one asset may not necessarily work for another asset.

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