Keltner BandsKeltner Channels were developed by Chester W. Keltner. They have a mid band based on the average of the high, low and closing price with a band on each side formed from the 10 moving average of the daily high minus the daily low. This would be represented as:
Average Price (AP) = (C+H+L)/3
Band Moving Average = 10 Day Simple Moving Average (SMA) of (High – Low)
Middle Moving Average = 10 Day SMA of AP
Upper Band = Middle Moving Average + Band MA
Lower Band = Middle Moving Average – Band MA
Originally, Keltner had his system buy when the close exceed the upper channel and sell when the close was below the lower channel. Basically, penetration exceeding the channels showed a strong bullish or bearish momentum and presumably the momentum would continue.
However, there is no reason why the Keltner Channel cannot be interpreted the same way as other price envelopes such as Bollinger Bands. When using Bollinger Bands ninety five percent of price movement occurs within the bands. The upper and lower bands are considered as extremes of the price movement and are a warning that price exhaustion may be occurring. Buy signals occur when the price is below the lower band and sell signal occur when price exceeds the upper band.
The default period is 10, this can be changed in the Edit box provided.