A Keltner Channel is a volatility-based technical indicator consisting of three lines: a central exponential moving average (typically the 20-period EMA) and two outer bands set at a multiple of the Average True Range (ATR) above and below the EMA. Unlike Bollinger Bands, which use standard deviation, Keltner Channels use ATR to define the band width, making them smoother and less reactive to sudden price spikes. Traders use Keltner Channels to identify trend direction (price consistently above the midline is bullish), overbought and oversold conditions (price touching outer bands), and breakout setups. When used alongside Bollinger Bands, squeezes where Bollinger Bands narrow inside the Keltner Channel are watched as powerful pre-breakout signals.
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