Keltner Channels

Overview

Keltner Channels, developed by Chester Keltner and later modified by Linda Raschke, are volatility-based envelope indicators that help traders identify trend direction, overbought/oversold conditions, and potential breakout opportunities. The channels consist of an exponential moving average (EMA) centerline with upper and lower bands set at a multiple of the Average True Range (ATR) above and below the centerline. The modern version uses the formula: Upper Channel = EMA + (ATR × multiplier) and Lower Channel = EMA - (ATR × multiplier), creating dynamic bands that expand and contract with market volatility.

Unlike Bollinger Bands which use standard deviation, Keltner Channels use ATR for volatility measurement, making them smoother and less prone to whipsaws. This characteristic provides cleaner signals in trending markets where prices often "walk the bands" - consistently trading near the upper channel in uptrends or lower channel in downtrends. The channels are particularly effective for identifying squeeze patterns where narrowing bands indicate low volatility and potential breakouts. Linda Raschke's modification using EMA instead of the original simple moving average improved trend identification, while maintaining the indicator's core strength of providing clear support and resistance levels that adapt to market conditions.

Interpretation & Trading Signals

Example Usage

Code examples will be available once the Rust implementation is complete.