Keltner Channel
Type
Trend follower
Short introduction
Keltner tapes are a simple and less common taping technique published by Chester Keltner in 1960. In general, the envelope technique attempts to capture most of the prices within the bands given by it in order to derive trading signals from the band crossings that are then regarded as unusual. An upward exit is regarded as an overbought signal and a downward exit as an oversold signal. In contrast, Keltner interprets the upward breakouts as buy signals on the assumption that they initiate a strong trend.
Formula/calculation
Similar to Bollinger Bands, the determination of the band distance for Keltner Channels is based on a volatility measure, which is defined here as the average range. Keltner Channels circulate in several variants, which differ in the type of moving averages, the addition of a band factor, the price basis used (close, typical price), the range concept (range, true range) or the interpretation. In this online help, we will limit ourselves to the classic calculation:
Middle =SMAn ( (C+H+L) / 3 )
Keltner = Middle +/-SMAn ( H - L)
where:
n = both the period number for the price average and the period number for the range average
In the classic variant, both period figures are kept the same. In the literature tips below you will also find the formulas of the various variants, e.g. the Stollers Average Range Channels (Starc).
Statement/Interpretation
The following literature is recommended for the statement and interpretation of the Keltner Channel indicator:
- Evens, Stuart: Keltner Channels, Technical Analysis of Stocks & Commodities, 12/1999
- Kaufman, Perry J.: Trading Systems and Methods, Wiley, 1998
- Murphy, John J.: Technical Analysis of the Financial Markets, FinanzBuch Verlag, 3rd ed. Edition, 2003
- Müller, Thomas and Lindner, Wolfgang: The big book of technical indicators, TM Börsenverlag
Default setting
- n = 10
Basic trading systems
- Keltner Channel
In the basic trading system "Keltner Channel", the default setting for the period 10. The base trading system provides buy signals when the close breaks through the upper band of the indicator from bottom to top, and sell signals when it breaks through the lower band of the indicator from top to bottom.