# Keltner Channel: An Essential Guide An Essential Guidelines: The Keltner Channel is an uncomplicated but mighty trading indicator. It can help determine the better entry point in the market. It can help in predicting market turning points which can substantially improve the winning rate.

It is a volatility indicator that was introduced by Chester Keltner in the 1960s. In the year 1980, Linda Raschke made further development in the Keltner channel. The Linda Raschke version of the Keltner channel is the most used technical indicator.

Here, we will furnish you with information about the Keltner channel. This information will enable you to understand the Keltner Channel clearly.

## What Is Keltner Channel?

It is a technical indicator that shows the central moving average and channel lines at a distance above/below. It is a volatility based technical indicator that belongs to an envelope indicator family.

It consists of three lines. The trader uses these lines to assess the volatility based on price action and support or resistance levels of an asset.

The guides traders in setting entry and exit points in the financial markets. It shows possible price breakouts, trends and provides overbought and oversold readings.

The middle line depicts the exponential moving average (EMA), and the two outer lines represent the average true range (ATR). The two additional lines lie above and below the exponential moving average (EMA).

The upper line and the lower line is set two times ATR above and below the EMA. The Band expands and contracts with volatility.

### What Is The Formula For Calculating Keltner Channel?

• Keltner Channel Middle Line = EMA (typically over 20 periods)
• Keltner Channel Upper Band = EMA + 2 * ATR (usually over 10 or 20 periods)
• Keltner Channel Lower Band = EMA − 2 * ATR (usually over 10 or 20 periods)

### How to Calculate?

The First step in calculating the Keltner channel is to Calculate the exponential moving average (EMA). It is a type of moving average that gives higher weights to recent data points. It provides greater weighting and significance to an assets most recent price movement.

The traders use 20 day Ema for calculating the Keltner channel.

### Steps to Calculate Exponential Moving Average

#### Calculate SMA

You can calculate the SMA by using this formula:

SMA = (P1+ P2+P3…. +Pn) / n

Where P is the closing price of an asset and n is time period. For example, a company posted a closing price of 10 days.

 Days (n) Price (p) 1 10 2 12 3 9 4 10 5 15 6 13 7 18 8 18 9 20 10 24

(10 + 12 + 9 + 10 + 15 + 13 + 18 + 18 + 20 + 24) / 10 = 14.90

### Calculate The Multiplier For Weighting The EMA

To calculate the multiplier, We will use this formula:

Weighted multiplier= 2/number of time frame + 1*100

For ten-day Ema, you would divide two by (10+1) = 11 and multiply by 100, and you will get 18.18%.

#### Calculate The Current EMA

To calculate the current EMA, We will use the following formula:

((closing Price Previous EMA) * weighted multiplier) + Previous EMA = Current EMA

By taking the closing price of 1.45 and previous EMA as 1.44 and weighted multiplier as 18.18%.We will get the following result:

((1.45+1.44)*18.18)+ 1.45=1.6318

The second step in calculating the Keltner channel is calculating the ATR.

The formula for calculating the ATR is

TR = Max[(H−L),  Abs(H−CP),  Abs(L−CP)]

ATR = (n/1) (i=1)∑(n)TRi

where:

TRi=A particular true range

n=The time period employed

After you have found out ATR and EMA, Then follow these steps:

• Multiply ATR by two and add that number with EMA value to get upper band value.
• Multiply ATR by two and subtract that number with EMA to get lower band value.
• When each period end, repeat the steps.

### How To Identify Different Market Conditions With Keltner Channel?

On the investment, chart Insert both Keltner channel and 200 periods Moving average.

Once you do that a new chart will appear in front of you. Now if you notice that it is above 200 periods moving average, then it is an upward trend. In this situation, look for buying assets. If you notice that the Keltner channel is below 200 periods moving average, then it is a Downward trend. One should look for selling assets. If the 200 periods moving average lies inside it, the market is in range. Here traders can buy low and sell high.

### Summary

• It is a volatility indicator that was introduced by Chester Keltner in the 1960s.
• In the year 1980, Linda Raschke made further development in the Keltner channel.
• The Linda Raschke version of the Keltner channel is the most used technical indicator.
• It is a technical indicator that shows the central moving average and channel lines at a distance above/below.
• It is a volatility based technical indicator that belongs to an envelope indicator family.
• It consists of three lines.
• The middle line depicts the exponential moving average (EMA), and the two outer lines represent the average true range (ATR).
• The two additional lines lie above and below the exponential moving average (EMA).
•  The upper line and the lower line is set two times ATR above and below the EMA.
• The Band expands and contracts with volatility.
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