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Volatility bands based on ATR around EMA.
Keltner Channels are volatility envelopes set above and below an EMA, using the Average True Range (ATR) to determine bandwidth. Developed by Chester Keltner and later refined by Linda Bradford Raschke, they combine trend direction (EMA) with volatility measurement (ATR).
Key insight: While Bollinger Bands use standard deviation, Keltner Channels use ATR. This makes Keltner Channels smoother and less prone to sudden expansions. The practical difference is that Keltner Channels are better at identifying sustained breakouts vs. Bollinger's strength in detecting volatility squeezes.
Default settings use a 20-period EMA with bands at 2× ATR above and below. About 95% of price action occurs within the bands, making closes outside them statistically significant.
Channel breakout: Price closing above the upper band signals strong bullish momentum. Closing below the lower band signals strong bearish momentum. These moves often initiate sustained trends.
Channel walk: In strong trends, price rides along the upper or lower band without returning to the midline. This is a trend strength signal — don't fade it.
Keltner-Bollinger squeeze: When Bollinger Bands contract inside Keltner Channels, it signals extremely low volatility. The breakout from this squeeze is often explosive.
This indicator works best when combined with price action analysis. Never trade indicators alone - always confirm with the chart.
Indicators confirm what price action shows. They don't replace it. Never trade based on an indicator signal alone. Always combine with chart structure, pattern recognition, and volume analysis.
The Academy teaches when to use this indicator, when to ignore it, and how to combine it for high-probability setups.
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