# How to Use Keltner Channels to Identify Overbought and Oversold Conditions

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Technical analysis undoubtedly constitutes one of the most used tools by investors and managers to make decisions in the financial markets. This modality includes numerous analysis tools ranging from indicators, and mathematical oscillators, to patterns and figures.

One of these lesser-known technical indicators is the Keltner Channels. We dedicate the following post to its study, applications, and interpretations.

Within the technical indicators, there are more than 80 that can be used but only a dozen of them are known to the general public. The combination of these indicators and the contrast of information they provide can contribute to the decision-making of entering and exiting a value, or the strength of trends in the market. To use these indicators in our analysis we can use the broker platform such which has advanced charts. In our article Top 4 trading platforms for active traders , you can compare some of the ones used by traders.

## What are Keltner Channels?

The Keltner Channels were created by Chester W. Keltner in his book “How To Make Money in Commodities“. Its operation is similar to the Bollinger Bands, that is, it is an indicator constituted by an internal line and two external lines.

The lines that form the Keltner Channels represent the average of the maximum, the minimum, and the closing price. The outer lines are formed by the average of the daily maximum minus the daily minimum in 10 days.

## What is the difference between Keltner Channels and Bollinger Bands?

The main difference with Bollinger Bands is that these are created using the standard deviation of the asset analyzed while the Keltner channels are calculated using the Average True Range (ATR).

This difference in the method implies that this indicator usually offers more buy and sell signals than those generated by Bollinger Bands.

## What interpretation do Keltner Channels have?

These channels have a very simple interpretation, if the quotation breaks the upper line it is giving us overbought signals, while if the quotation breaks the lower channel it is not giving us oversold signals.

## Example of application of Keltner Channels

Let's see an example of how to apply Keltner Channels, for this we will use a wide variety of technical indicators.

#### Step 1: Select the asset

In this case, we are going to choose the Santander Bank stock since it is one of the most popular among traders and investors.

#### Step 2: Select the technical indicator

We add the Keltner Channel and some other indicators to complement our analysis, in this case, the RSI.

#### Step 3: Check the indicator configuration

In this step, we look at the parameters that the indicator has to understand the information it provides.

#### Step 4: Analyze the information

Once we get here we analyze the information provided by the Keltner channels. With the drawing tools and arrows we can see the moments when the quotation exceeds the outer bands and to confirm the signal we draw vertical lines and see the behavior of the RSI. If the two signals coincide it can be interpreted as a change of trend is close.

## Conclusions

Technical indicators are an indispensable tool for followers of technical analysis. Expanding the range of indicators is a necessity if we want to achieve returns in the market. Within them, we must know which ones can offer us complementary information and which ones offer us similar information to discard them.

Knowledge, a good operating platform, psychology, and low commissions are the pillars of being profitable as a trader. As we have seen, trading platforms allows us to perform advanced technical studies, which can help us make better investment decisions.

## FAQs

### What are Keltner Channels?

Keltner Channels are a technical indicator that measures volatility and trend direction. They are similar to Bollinger Bands, but they are calculated using the Average True Range (ATR) instead of the standard deviation.

### What are the best settings for Keltner Channels?

The best settings for Keltner Channels will vary depending on the asset you are trading and your trading style. However, a common setting is to use a period of 10 days and a multiple of 2 for the ATR.

### What is the difference between Keltner Channels and Bollinger Bands?

Keltner Channels are calculated using the ATR, while Bollinger Bands are calculated using the standard deviation. This difference in calculation method means that Keltner Channels are typically more sensitive to market volatility than Bollinger Bands.

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