If you are looking to understand how to use Keltner Channel indicator, you are at the correct page. Every one will start with saying that it is a very simple and easy to use indicator.
While we would agree to an extent, it is not easy to understand though. It does nothing but helps you better time your entries. Also, it helps you improve your winning rate. And you can even ‘predict’ market turning points.
Details of Keltner Channel Indicator
It is an envelope based indicator. Keltner is often misunderstood with other indicators such as Bollinger Bands. The Keltner channel has two boundaries typically called upper boundary and lower boundary. These boundaries are helpful in identifying overbought and oversold levels.
By default, the settings for Keltner Channel are:
- Upper Boundary : It is 20-period EMA (Exponential Moving Average) + (2 * Average True Range).
- Lower Boundary : It is 20-period EMA (Exponential Moving Average) – (2 * Average True Range).
- Middle Line : It is simple 20 period EMA.
So all in all, middle line in moving average. The upper/lower boundary helps track deviation from moving average.
How to Setup Channel on TradingView
If you are using TradingView, you can easily setup Keltner channel. Here is a quick guide to do the same.
Keltner channel can be easily used to identify a side-ways market. If a stock is trading with Keltner channel range in multiple time-frames, then deploy side-ways market strategies. This can be used by option sellers.
Remember, if a price is getting beyond Keltner range then look for volume. If the volume breakout is decent enough (atleast 1.5x the previous candle), then high chances of breakout.
If the volumes were not good, the price is going to get back into keltner range. We hope that you will be able to identify movements with this indicator.