Keltner Band is an indicator developed by Chester Keltner in 1960. This classic indicator was designed to identify market volatility and recognize when the market crosses or is out of the bands. A good visual graphic about the opening of a particular trend is presented by this indicator. In this view, Keltner band will look like a Donchian breakout method.
The channels which are inside the Keltner came from the Average True Range (ATR) indicator and calculated within 20 days period of Moving Average. Sometimes, this time period is modified into 10 days period. The ATR is used to measure the volatility of the trading instrument. In order to determine the top and bottom limit of the Keltner pipe, the arrangement of these channels is calculated by using two indicators: ATR and Moving Average. The ATR will be multiplied by 2 and added to the 20 days period in the Exponential Moving Average to get the upper band, and on the contrary will be subtracted from the Exponential Moving Average to get the lower band. Traders may use these currency pairs: USD/EUR, GBP/USD, or UCD/CHF.
If you are a trader or investor, and you want to use Keltner Band as your tool of analytical thinking, you may put several things below in your to do list:
- Download the Keltner Channel
- Change the time period of MA from 10-40
- Use time frame H4 for trading
The Keltner graphic has three bands:
- Upper band
- Median band (the line of 20 days period of the EMA)
- Lower band
When the closing price is above the upper band, the positive signal will show the top breakout. At this point, traders may open a buy position. If the closing price is crossing the lower band, this could possibly a negative signal and the price will fall down. So, traders may open a sell position.
If price continue to stay above the upper band within an uptrend condition,means that the positive signal will endure until price is moving closer to the lower band. Traders may also treat the 20 days period of EMA as a support point if the price is unable to cross the upper band.
That’s all about Keltner Band indicator. I hope this article gives you a more clear understanding.
Happy trading in PAMM Investments !
Don’t forget to read this important article for PAMM trader
1. How to become a PAMM Trader
2. Understanding your Forex Trader Level as PAMM Trader