Keltner Channels are volatility envelopes above and below a moving average. Keltner Channels are similar to Bollinger Bands, which use the standard deviation to set the bands, except Keltner Channels use the Average True Range (ATR) to as the volatility indicator.
Keltner Channels can be used as a trend following indicator used to identify channel breakouts and channel direction.
Keltner Channels may also be used as a countertrend signal to identify overbought and oversold levels in a more non-trending market.
Indicators based on channels used as bands are designed to include most of a trends price action. So, a trend that moves above or below the channel may signal a strong enough move to change a trend. A strong breakout to the upside may signal a trend following buy signal while a strong breakdown below the lower channel may signal strong enough weakness to indicate a downtrend.
Keywords: Keltner Channels, Trend Following Signals, Countertrend indicators, volatility trading