1 With an exponential moving average as its foundation, Keltner Channels are a trend following indicator.
As with moving averages and trend following indicators, Keltner Channels lag price action.
The direction of the moving average dictates the direction of the channel.
In general, a downtrend is present when the channel moves lower, while an uptrend exists when the channel moves higher.
2 A channel upturn and break above the upper trendline can signal the start of an uptrend.
A channel downturn and break below the lower trendline can signal the start a downtrend.
3 Keltner Channels Versus Bollinger Bands
There are two differences between Keltner Channels and Bollinger Bands.
(1)Keltner Channels are smoother than Bollinger Bands because the width of the Bollinger Bands is based on the standard deviation, which is more volatile than the Average True Range (ATR). Many consider this a plus because it creates a more constant width.
This makes Keltner Channels well suited for trend following and trend identification.
(2)Keltner Channels also use an exponential moving average, which is more sensitive than the simple moving average used in Bollinger Bands.
4 Even with a new uptrend established, it is often prudent to wait for a pullback or better entry point to improve the reward-to-risk ratio.
(a)StockRSI(14) or CCI(10) can be used
5 Keltner Channels are a trend following indicator designed to identify the underlying trend.
Trend identification is more than half the battle.
KELTNER Channels from Stock Charts http://stockcharts.com/school/doku.php?st=keltner&id=chart_school:technical_indicators:keltner_channels