Keltner Channels look like Bollinger Bands — a middle line with an upper and lower envelope — but they are built differently. The middle is usually an EMA, and the bands are set a multiple of ATR above and below (rather than standard deviations). Using ATR makes them smoother and less jumpy than Bollinger Bands, which react to every volatility blip.
Bollinger vs. Keltner
- Bollinger Bands — standard-deviation based; widen/narrow sharply with volatility; great for spotting the squeeze.
- Keltner Channels — ATR based; smoother, steadier; good for trend-riding and cleaner breakout signals.
- Both answer 'how stretched is price?', just with different smoothing.
The squeeze combo
The two together produce a well-known signal. When the Bollinger Bands contract inside the Keltner Channels, volatility is exceptionally low — a high-quality squeeze (popularised as the 'TTM squeeze'). When the Bollinger Bands expand back outside the Keltner Channels, the squeeze has 'fired' and a volatility expansion is underway. It is one of the cleaner ways to objectively flag a coiled market.
Using them
For trend-riding, a close outside the Keltner Channel in the trend's direction is a momentum signal worth respecting; price tends to ride the channel edge in strong trends just as it walks the Bollinger band. As always, the channels are a volatility/extension overlay — pair them with trend and structure rather than fading every edge touch.