Developed by Chester Keltner. Described in his book "How to Make Money in Commodities"
Keltner Bands are based on ATR technical indicator, the bands use ATR values to plot the bands lines.
These Bands form Channels that help to identify the forex market trends using this simple volatility channel.
Construction
Keltner Channels are similar to Bollinger Bands except for the fact that Bollinger Bands use standard deviation method to determine volatility and to plot the bands.
For the keltner bands instead of using the standard deviation the average true range (ATR) measure of volatility is used.
The Keltner Bands indicator is an n number of periods exponential moving average of the closing price. These bands are created by
adding (for the upper line) and
subtracting (for the lower line)
an (n-period simple moving average of an n-period ATR) * an ATR multiplier.
Technical Analysis of Keltner Bands Indicator
This indicator can be traded in much the same way as the Bollinger Bands.
Continuation signals
When price moves outside the bands then a continuation of the current
Forex trend is implied. A buy signal is when the Keltner channels are
moving upwards and sell signal is when the Keltner channels are moving
downwards
Reversal Signals- Double Tops and Double Bottoms
Tops and Bottoms made outside the bands followed by tops and bottoms
made inside the keltner channels indicate signal for reversals in the
forex trend.
Ranging Forex Markets
In ranging markets a move that originates from one keltner channel tends to go all the way to the other keltner channel.
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