what is a keltner channel 
keltner channels are volatility based bands that are placed on either side of an asset s price and can aid in determining the direction of a trend the keltner channel uses the average true range atr or volatility with breaks above or below the top and bottom barriers signaling a continuation image by sabrina jiang investopedia 2021understanding the keltner channelthe keltner channel was first introduced by chester keltner in the 1960s the original formula used simple moving averages sma and the high low price range to calculate the bands in the 1980s a new formula was introduced that used average true range atr the atr method is commonly used today 1the keltner channel is a volatility based technical indicator composed of three separate lines the middle line is an exponential moving average ema of the price additional lines are placed above and below the ema the upper band is typically set two times the atr above the ema and the lower band is typically set at the inverse of two times the atr below the ema the bands expand and contract as volatility measured by atr expands and contracts since most price action will be encompassed within the upper and lower bands the channel moves outside the channel can signal trend changes or an acceleration of the trend the direction of the channel such as up down or sideways can also aid in identifying the trend direction of the asset using keltner channelskeltner channels have multiple uses how they are used largely depends on the settings a trader uses a longer ema will mean more lag in the indicator so the channels won t respond as quickly to price changes a shorter ema will mean the bands react quickly to price changes but will make it harder to identify the true trend direction a bigger multiplier of the atr to create the bands will mean a larger channel the price will hit the bands less often a smaller multiplier means the bands will be closer together and the price will reach or exceed the bands more often traders can set up their keltner channels any way they like with the following potential uses in mind keltner channel calculation