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The Keltner Channel is a band-indicator that takes into account the volatility of the market. Developed by Chester W. Keltner, it consists of three bands (similar to Bollinger bands):

Middle band: 20-Period Exponential Moving Average
Upper band: Middle Band + 20-Period Average True Range
Lower band: Middle Band - 20-Period Average True Range

 Absolutely NO THINKING is needed, just buy when Blue and sell when Red!

It is similar to Bollinger bands in its general theme, except it calculates volatility in different algorithm. Bollinger Bands define the standard deviation as volatility while the Keltner Channel use the Average True Range to extract volatility.

Trading Methods
The Keltner Bands can be traded in several, very different methods. The first one is the simple Trend-Following breakout method. It is the simplest of all yet suffers from many whipsaws and weak signals.

Breakout Method
The breakout method exploits the fact that upon breakout of a Keltner band (lower or upper), price tend to continue in the breakout direction. The lower and upper bands serve as Support and Resistance areas and their breakout is triggering stops that initiate a trend.

Trading rules:
Go Short when price closes below the lower band of the Keltner channel.
Go Long when price closes above the upper band of the Keltner channel.

Bounce Method
This is a more sophisticated trading system that uses the fact that lower and upper bands serve as resistance and support, to take trades on the bands themselves. When used correctly this can be a very profitable trading method.

This method implies that trades are taken in the direction of the Middle band (20-Period EMA). If the EMA is trending up we will take only long trades, and if it is trending down we will take only short trades. Trades are triggered when price touches one of the bands (lower or upper) and bounces of it. Use candlestick formation to confirm the bounce and enter trade.

To maximize the potential and increase hit rate, one can confirm the trades with a support or resistance level that should align with the price bounce. This highly increases profits and method profitability.

Using Keltner Bands as Stops
The Keltner Bands are also useful to use as stop loss in your trading systems. Due to the fact that the bands account for market volatility, they can be very useful in globalizing your trading systems - making them work on many pairs without manual adjustment. Globalizing trading systems is essential for professional trading, and using volatility stops is a crucial issue to deal with. This approach is similar to the Chandelier Stop Loss that uses only the ATR in defining stop loss points.