Keltner Channels
Keltner Channel is a volatility-based “envelope” indicator developed by Chester Keltner. The difference between it and Bollinger Bands is that while Bollinger Bands represent volatility with standard deviation, Keltner channels use highs and lows.
“Envelope” theory says prices will most likely stay within the envelope, so playing the range is a possible strategy. But if prices break through the channel, expect the price trend to continue.
This 60-minute QQQ chart shows how a Keltner Channel is typically displayed on a price chart. Make note of the circled candles. Those are the times when the stock traded outside the channel. The first time was the second day of the chart (a Friday). The stock traded through the bottom, and that started a 2-day drop. The following Wednesday the stock traded through the top of the channel, and that started a solid trend day which is way for day traders to play. Two days later the stock again traded down through the channel's bottom, and a 2-day drop began. The only false move occurred on the next Tuesday when the stock traded above the channel, but we actually do not consider this a false move because the stock gapped up there rather than trading up there. A big gap up is not playable to the upside unless it can hold for the first hour...which it was not able to do here.
