What are Keltner Channels?

Keltner Channels are a volatility envelope: a moving average with two bands whose distance comes from the size of recent candles. Chester W. Keltner described the first version in his 1960 book How to Make Money in Commodities. His middle line was a 10-day simple average of the typical price, (high + low + close) ÷ 3, and the bands sat one 10-day average of the daily high-low range above and below it.

The version most charts use today came later. In the 1980s Linda Bradford Raschke and others replaced the simple average with an exponential one and the plain range with the Average True Range, which also counts gaps. That modern form, a 20-period EMA with bands 2 × ATR away, is what TradingView and most platforms load by default, and it is the version this guide uses.

The idea is simple. The EMA shows the trend, and ATR shows how far price normally travels per candle. A close beyond a band means price moved more than about two typical candles away from its average: a sign of strength in a trend, or of a stretched move in a range.

Keltner Channel formula, with a worked example

The three lines, using the common settings, are in the list below. Because the bands use ATR rather than standard deviation, they move more smoothly than Bollinger Bands, and a single large close does not push them out as much.

Hypothetical example on a 1-hour chart: the 20-period EMA of the closes is $50.00 and ATR(10) is $0.80. The upper band is $50.00 + 2 × $0.80 = $51.60 and the lower band is $50.00 − 2 × $0.80 = $48.40. The channel is $3.20 wide, four ATRs. If ATR rises to $1.00 on bigger candles, the bands move out to $52.00 and $48.00 even if the EMA has not changed.

  1. Middle line = EMA(20) of the close.
  2. Upper band = EMA(20) + 2 × ATR(10).
  3. Lower band = EMA(20) − 2 × ATR(10).

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The worked example: a dashed middle line at 50.00 with an upper band at 51.60 and a lower band at 48.40, each bracketed as 2 × 0.80 = 1.60. A card lists EMA(20) = 50.00, ATR(10) = 0.80, 50.00 + 1.60 = 51.60, 50.00 − 1.60 = 48.40, and notes that the channel is 4 ATRs wide.

How to add Keltner Channels on TradingView

Keltner Channels are built into TradingView and free on every plan. The defaults described here are those of the built-in version at the time of writing; check the Inputs tab, because other scripts with the same name can use different math.

  1. Open a chart, click Indicators in the top toolbar, search for Keltner Channels and pick the built-in version.
  2. Click the gear icon to open Settings. On the Inputs tab you will see Length (20), Multiplier (2), Source (close) and Use Exponential MA (on).
  3. Bands Style is set to Average True Range, with ATR Length 10. The other choices, True Range and Range, make the bands jumpier and closer to the original idea.
  4. Keep the defaults to start. A multiplier of 1.5 gives a tighter channel that price leaves more often; 2.5 or 3 gives a wider one that price rarely closes outside.
  5. To be told when price closes outside a band, create an alert and choose Once Per Bar Close, as shown in the TradingView alerts guide.

How to read Keltner Channels

Start with the slope of the middle line. A channel that rises with price mostly in its upper half is an uptrend; a falling channel with price mostly in its lower half is a downtrend; a flat channel with price swinging from band to band is a range. The drawing at the top of the page shows a rising channel and a pullback that holds the middle line.

A close above the upper band in a rising channel is a sign of strength, not an automatic sell. In strong trends price can ride the upper band for many candles, and pullbacks often stop near the EMA. Traders who short every close above the band fight the trend, just as with the Bollinger Bands band walk.

In a flat channel the bands act more like a range: a close outside a band that is quickly followed by a close back inside often drifts back toward the middle line. The channel cannot tell you which of the two markets you are in; the slope, the levels and the closes do. Because ATR has no direction, wider bands only mean bigger candles, in either direction.

Keltner Channel pullback strategy, with entry, stop and target

The most common use is a pullback in a trend: buy when price pulls back to the middle line of a rising channel and a candle closes back up. The stop goes below the pullback low, and the first target is the upper band. It is the same idea as the pullback trading strategy, with the channel showing the trend and the normal stretch.

Hypothetical example on a 1-hour chart: the channel rises, with the EMA at $50.00 and ATR(10) at $0.80, so the upper band is at $51.60. Price pulls back to a low of $49.75, just under the EMA, then a candle closes back up at $50.20. You buy at $50.20 with a stop at $49.50, below the pullback low, which risks $0.70 per share. The target is the upper band at $51.60, $1.40 away: twice the risk, or 2R.

Size from the stop. A $20,000 account risking 0.5% accepts a $100 loss: $100 ÷ $0.70 = 142.9, so 142 shares, and a full stop-out costs 142 × $0.70 = $99.40 plus costs. The position size calculator does this math.

The failed version: the next candle closes below $49.50 and the channel starts to flatten. You lose about 1R, more if a fast move fills you below the stop, because a triggered stop becomes a market order. Keep the stop at a fixed price, never at the moving band or EMA, which shift every candle.

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A rising Keltner Channel: price pulls back to a low of 49.75 near the dashed middle line, then a buy signal prints at 50.20. A red dashed stop sits at 49.50 and a green dashed target at 51.60, the upper band. A card reads entry 50.20, stop 49.50, target 51.60, risk 0.70, reward 1.40, = 2R.

Keltner Channels vs Bollinger Bands, and the squeeze

Both draw bands around an average, but the width comes from different places. Bollinger Bands use the standard deviation of the closes, so they react fast to a burst of big closes and pinch tight in quiet markets. Keltner Channels use ATR, so they change more gradually. Neither is better; they answer slightly different questions.

Put both on one chart and you get the squeeze popularized by John Carter as the TTM Squeeze: when the Bollinger Bands move inside the Keltner Channel, volatility has dropped unusually low. When the Bollinger Bands expand back outside the channel, the squeeze has "fired" and a larger move may be starting. The squeeze does not tell you the direction; the close outside the range does, and the first break can fail, as covered in the breakout trading strategy.

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A Keltner Channel drawn as gray dashed lines and Bollinger Bands drawn as solid lines. In a shaded stretch the Bollinger Bands sit inside the Keltner Channel, labeled squeeze. Then a rally starts and the Bollinger Bands widen out past the Keltner Channel.

Common Keltner Channel mistakes

Like every indicator, Keltner Channels are wrong often. Most losses come from a few habits:

  • Selling every close above the upper band in an uptrend. In strong trends price rides the band.
  • Reading wider bands as bullish or bearish. ATR only measures size, not direction.
  • Trading the middle line in a flat channel. Pullbacks to the EMA work in trends; in ranges price crosses it back and forth.
  • Placing the stop at the band. It moves every candle; use a fixed price beyond the pullback low or the level.
  • Adding a second volatility band and calling it confirmation. Bollinger and Keltner both measure volatility; pair the channel with momentum, such as the CCI or the RSI, or with volume instead.
  • Acting before the candle closes. The EMA, ATR and the bands all change until the bar is complete.

Keltner Channel terms

The words used in this guide, defined in one place.

Keltner Channel
A volatility envelope: an exponential moving average, usually 20 periods, with bands a multiple of ATR, usually 2 × ATR(10), above and below it.
Middle line (basis)
The moving average at the center of the channel. Its slope shows the trend.
Average True Range (ATR)
The average size of recent candles, gaps included, in price units. It sets the distance of the bands.
Multiplier
How many ATRs the bands sit from the middle line, 2 by default. A higher multiplier gives a wider channel.
Squeeze
A stretch when the Bollinger Bands sit inside the Keltner Channel, a sign of unusually low volatility that does not show the direction of the next move.