Keltner Channels are used primarily as a trend following indicator, identifying if trends are up, down, or flat. Trading envelopes are set above and below a moving average. The average true range sets how wide the upper and lower channels will be and the exponential moving average helps give the direction of the trend.

A break above the upper trend line and a channel upturn can signal the beginning of an uptrend.

A break below the lower trend line and a channel downturn can signal the beginning of a downtrend.

The Keltner Channels can also be used as overbought and oversold levels especially when the trend is flat. When prices are against the upper channel it can act as resistance. When prices are at the lower end of the channel it can act as support.

Formula:

Middle line = EMA( Close, Param1 )

Upper channel line = Middle line + ( ATR( Param2 ) * Param3 )

Lower channel line = Middle line - ( ATR( Param2 ) * Param3 )

Where:

EMA = Exponential Moving Average

ATR = Average True Range