Description

• Developed by Chester Keltner, this indicator acts as a trigger as well as showing over-bought and over-sell
• Its appearance is similar to Bollinger bands but construction consist of typical price and ATR as its input
• Width of band depends on volatility, ATR and factor used for multiplication
• This indicator is based on the Enveloping principle. This principle says that price line should lie with this envelope; the price line going out of this envelope is an anomaly and should be considered as a trading opportunity
• This indicator must be used with another indicator for confirming signals

Interpretation

• If stock price closes above upper band, it’s a buy signal
• If stock price closes below lower band, it’s a sell signal
• During the period of high volatility distance between bands will be quite wide and when volatility is low distant contracts
• Price level crossing the upper and lower bands also indicates over-bought and over-sell respectively

Default Parameters Used/Inputs

• Close Line
• High line
• Low line
• Average type
• Average Bars- required for calculating Average
• ATR Bars- required for calculating Average True range
• Factor- used in Keltner formula

Returns/Output

Keltner bands (upper and lower) indicating buy sell positions

Formula

KC Upper Band = MA (Avg type, n) + ATR(n)*factor

KC Lower Band = MA (Avg type, n) - ATR(n)*factor

Where ATR is Average True Range