Keltner Channels
Volatility & bands
Bands around an EMA, but with the ATR (average daily move) as the width measure instead of the standard deviation. That makes them smoother and less jumpy than Bollinger Bands.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Center line = EMA(20) of the closing price.
- Compute the ATR over 10 periods.
- Upper band = EMA + 2 x ATR; lower band = EMA - 2 x ATR.
Center = EMA(20)
Upper = EMA(20) + 2 x ATR(10)
Lower = EMA(20) - 2 x ATR(10)
Interpretation
- Unlike Bollinger, a breakout outside the Keltner channel is classically read as trend confirmation, not as an overextension.
- The reason: the ATR reacts more slowly than the standard deviation, so a price that leaves the channel shows real momentum, not a temporary spike.
- The combination is popular: Bollinger Bands inside the Keltner Channels = the classic Squeeze setup.
How the signal works in this scanner
Buy signal (green)The closing price closes above the previous day's upper band (yesterday's band, so today's price cannot artificially touch its own band) and that happened within the last 4 bars: strong upward momentum.
Sell signal (red)The closing price closes below the previous day's lower band: strong downward momentum.
Watch-outs & pitfalls
- Interpreted exactly the opposite of the Bollinger breakout in this scanner. That is not a mistake: they are two different schools, and they complement each other.
- Requires at least 35 trading days.