What Is Keltner Channel?
Keltner Channels are volatility-based envelopes set above and below an Exponential Moving Average. The upper and lower bands are calculated by adding and subtracting a multiple of the Average True Range (ATR) from the EMA. Typical settings use a 20-period EMA with bands at 2x ATR.
How Keltner Channel Works
Unlike Bollinger Bands (which use standard deviation), Keltner Channels use ATR, making them smoother and less susceptible to single-candle spikes. The bands expand during volatile periods and contract during quiet periods. Price touching or exceeding the upper band suggests overbought conditions; touching the lower band suggests oversold conditions.
Why It Matters for Traders
A powerful technique combines Keltner Channels with Bollinger Bands: when Bollinger Bands squeeze inside the Keltner Channels, it signals extremely low volatility that often precedes a major breakout. The direction of the breakout (above or below the Keltner Channel) then signals the trend direction. This "squeeze" setup is a favorite among crypto swing traders.
