Keltner Channel

Keltner channels help you identify market trends. Keltner channels compare today’s prices with yesterday’s prices. An absence of new highs indicates a down trend. An absence of new lows indicates an up trend. In conjunction with this method of trend identification, the Minor-Trend Rule is used. The Minor Trend Rule states that the minor trend is bullish if the daily trend sells above its most recent high: conversely, the minor trend is bearish if the daily trend sells below its most recent low.

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A Keltner channel study consists of a moving average and two channel lines. The channel lines are drawn by adding to and subtracting from the current moving average value the product of a constant multiplied by the average true range of each bar.

Formula:

Center Line:

Where:

CL = center line

EAVG = exponential moving average

n = number of bars

P = price

And:

Average True Range:

Where:

ATR = average true range

R = range

n = number of bars

H = high

L = low

And:

Upper Channel Line:

Where:

UP = upper channel value

CL = center line

ATR = average true range

C = constant

And:

Lower Channel Line:

Where:

DN = lower channel value

CL = center line

ATR = average true range

C = constant

see, Chester W. Keltner, How to Make Money in Commodities, Kansas City, MO: The Keltner Statistical Service, 1960; see also, Perry J. Kaufman, The New Commodity Trading Systems and Methods, New York: John Wiley & Sons, 1987.