Advanced Indicators Expansion Pack:
Keltner Bands Overlay Indicator
Kelter Bands are traditional moving average envelopes based on Exponential Moving Averages. The probability is that prices will remain within the channel, as with all band-type indicators. A break above the channel is an anticipation of higher prices. When prices close below the lower band, we anticipate lower prices.
The middle line (20 period EMA) in a rising market should provide support. In a falling market, the middle line should provide resistance. Keltner Bands, as with any moving average indicator, seem to work great in strongly trending markets, but not so well in sideways markets. Just like all trend-following systems, the Keltner Bands are not meant to spot tops or bottoms. Use the Keltner Bands in conjunction with other indicators such as RSI or MACD. Using it in combination with either of those will help provide verification of the strength of a market.
For the top, or Plus Band, the ATR is calculated over 10 periods, doubled, and added to a 20 period exponential moving average.
For the bottom, or Minus Band, the ATR is calculated over 10 periods, doubled, and subtracted from a 20 period exponential moving average.