Category: Advanced Indicator Set 1

Chester Keltner first presented his channels in 1960 [1]. Keltner Channels belong to a general group of smoothed envelopes. An envelope consists of 3 bands: upper, middle, and lower. The envelope theory claims that the price has the highest probability of being within the “envelope”, i.e. within the price range bound by the upper and lower bands. If the price drops below the lower band (or goes above the upper band), it tends to return back inside the envelope. This creates buy/sell opportunities.

Also found in the smoothed envelope group are Bollinger Bands and Starc Bands. Unlike Bollinger and Starc bands (which both have constant band width along the time axis), the Keltner Channels band width is variable and depends on the average daily range. Stuart Evens in [2] made a comparison between Keltner Channels, Bollinger and Starc Bands by backtesting trading strategies based on these envelopes.

Exact formulas for each band in the Keltner Channels are found under the specific help topics:

Keltner Channels – Upper Band

Keltner Channels – Middle Band

Keltner Channels – Lower Band

References

1. Keltner, Chester. How To Make Money In Commodities, 1960.

2. Evens, Stuart. Keltner Channels. Technical Analysis of Stocks & Commodities, December 1999, vol.17, no.12, p.45-51.