Keltner Channel is a moving average band indicator. Its upper and lower bands adapt to volatility changes by using the Average True Range (ATR). The Keltner Channel is used to show trends, to signal price breakouts, and to give overbought and oversold readings.
Three lines are included in the Keltner Channel: two are bands and the third is an Exponential Moving Average ("EMA.") The Exponential Moving Average, generally based on a 20-day sample, is enclosed within the two bands. The price floating towards either of the bands is often a buy or a sell signal.
Methods of use:
1. When price closes above the upper band it is a signal to buy.
2. When price closes below the lower band, it is a signal to sell.
Note 1: Signals are effective until the prices close across the opposite band.
Note 2: This indicator should be used in conjunction with other indicators to predict better exit opportunities.
