Here is how Keltner Channel helps traders analyse price action

Keltner Channel is a volatility-based technical indicator that comprises three bands, wherein the middle band is the exponential moving average (EMA) and the other two -- upper and lower bands -- are average true range (ATR). 

When the bands expand, the volatility increases. Similarly, a contraction in the bands is seen as an indicator of a decrease in volatility. This is the only volatility indicator that has direct practical benefit for traders.

In a normal scenario, the security price trades within the bands. Whenever the price breaks out of the bands, the trend is said to have gained momentum. The direction of the bands also highlights the direction of the trend. The bands showing a rising direction indicates a positive trend and vice versa.

Significance

-- A move outside these bands is considered as the strongest trend. This could either be upward or downward.

-- When the security trades along the upper band and retraces to the middle EMA, one can look for long opportunities, if the trend is positively trending.

-- The middle EMA acts as support/resistance level in Keltner Channel

-- Unlike in Bollinger Band, where volatility retracing back to bands indicates that the price is likely to witness profit booking, in Keltner channel, the security is expected to rise in respective direction aggressively.

-- Continuous closes outside the bands indicate that the trend is about to strengthen. And, until the price breaches the lower band, the trend is said to be one-sided.

The Keltner channel is majorly used for long-term investment. This is largely because once the Keltner channel bands indicate a specific trend, the strength and momentum seem to stay for long in bigger time frame charts, like monthly and yearly. For instance, as the volatility switches in favour of the bulls, Keltner channel can help in entry and subsequent follow-up. One can also look at the middle band for averaging positions.

Advantages

-- Rather than identifying volatility, over the years, this indicator has become more renowned for identifying triggers

-- This indicator depicts volatility in a more productive manner

-- Support and resistance can be easily established without much analysis

-- Keltner Channel with volume structure and chart patterns tends to deliver astonishing results

-- A typical formation of candlestick patterns on the upper or lower band indicates breakout in advance

-- A Keltner channel breakout above a significant moving averages like 200-DMA or 200-WMA shows strong upward sentiment

The price is the main component in any security. Other factors like volume and technical parameters stand second -- as the support cast. And hence, building a trading module based on price provides a greater degree of confirmation. Moving averages, Bollinger Band, Keltner channel, and Fibonacci retracement are, therefore, more accurate in determining the underneath sentiment, and help in entering favourable trades well in advance. CLICK HERE FOR THE CHART