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Indicators

The Keltner channel:a moving average with ATR bands.

A Keltner channel is a volatility indicator that draws an upper and lower band around a moving average, each a set multiple of the average true range (ATR) away from it. A common modern setting is a 20-period exponential moving average with bands two ATRs either side. Traders use it to judge trend and stretched moves.

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How the channel is built

The middle line is a moving average of price. The bands are the middle line plus and minus a multiple of ATR. Because ATR measures typical range, the channel widens in volatile conditions and narrows in quiet ones.

The indicator is named after Chester Keltner, who described an early version in 1960 based on a simple average and the average daily range. The ATR-based version is the one most charts now use; settings vary, so state yours before testing.

Keltner channel vs Bollinger Bands

Both put bands around a moving average; they measure width differently.

Two volatility channels compared
Keltner channelBollinger Bands
Band width fromAverage true rangeStandard deviation of closes
Typical middle line20-period EMA20-period SMA
Reaction to a single large barSmootherCan widen sharply
Common combined useBollinger Bands inside the Keltner channel is read as a squeezeSame

How traders use it

Trend traders read closes outside a band as strength in that direction and pullbacks to the middle line as potential entries. Range traders read touches of the bands in a flat channel as stretched moves that may revert. The two readings conflict, which is why the market's context - trending or sideways - has to be decided first.

Step by step

How to identify it

Set the channel up once and read it the same way every time.

  1. Choose the moving average type and period, and the ATR period and multiple.
  2. Decide whether you are reading trend (closes beyond bands) or reversion (touches of bands).
  3. Check whether the channel is sloping or flat.
  4. Use the channel with a separate entry rule and a stop.

Worked example

The concept,walked through

A close outside the upper band, described

An illustrative sequence in words, with round numbers standing in for price. It is not taken from any real instrument or date.

  1. 1. ChannelThe middle line is at 100 and the bands at 97 and 103, sloping up.
  2. 2. BreakA strong candle closes at 104, above the upper band.
  3. 3. PullbackOver the next sessions price pulls back to the middle line near 101.5.

A trend reader saw strength and waited for the pullback; a reversion reader saw a stretched move. The channel did not decide between them.

Common mistakes

Where tradersgo wrong

Mixing trend and reversion readings

Buying the upper band on one trade and selling it on the next makes results random.

Changing settings to fit each chart

Fit settings once, then test them honestly.

Treating the bands as support and resistance

They are calculated lines, not levels traders defend.

Limitations

What it cannottell you

No chart concept predicts price. These are the limits worth keeping in view.

  • The channel is built from past prices and lags.
  • There is no reliable evidence that Keltner signals predict direction on their own.

In an evaluation

Using it on asimulated account

Band-based stops scale with volatility, so position size should too. On a $100,000 account, with a daily loss limit of $3,000 on Instant or $5,000 on 1 Step and 2 Step, recalculate size whenever the ATR - and so the distance to the band - changes.

Trading rule

What is the daily loss limit?

The ceiling a band-based stop is measured against - 3% on Instant and 5% on 1 Step and 2 Step.

Trading rule

Is there a maximum lot size?

How size is bounded on a simulated account.

Trading rule

What is maximum drawdown?

The overall floor beneath the account.

Questions

Asked aboutthis concept

An indicator that plots bands a multiple of the average true range above and below a moving average, widening and narrowing with volatility.

Keltner channels set band width from the average true range; Bollinger Bands use the standard deviation of closing prices, which reacts more sharply to single large moves.

Keep learning

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Sources

What this pagerelied on

  1. Keltner channel - Wikipedia. Retrieved 23 September 2026. The channel's construction from a moving average and ATR, and Chester Keltner's original 1960 version.
  2. Average true range - Wikipedia. Retrieved 23 September 2026. The true range definition, Wilder's origin of the indicator and his 14-period smoothing.

Educational content only, not investment advice or a recommendation to trade. Chart concepts describe what price has done; none of them predicts what it will do, and trading any strategy can lose money. Get Funded Now accounts are simulated and trade virtual funds. Last reviewed 22 September 2026.

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