<div class="text-justify">Hello dear friends.
I continue learning about the use of indicators to perform technical analysis of cryptoassets, and this time I bring you information about an indicator that can help us to identify a trend and market volatility, for those who already know the Bollinger bands will surely find this indicator very familiar. But let's see a little more about it.
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**_Edited image, original from [pixbay.com](https://pixabay.com/es/photos/comercio-an%c3%a1lisis-forex-tabla-643723/)._**</center>
Keltner channels are a financial indicator that consists of three lines, a central line that corresponds to an Exponential Moving Average (EMA), and two lines located at the same distance, one upper and one lower, which represent a deviation with respect to the central line, this deviation is calculated based on the Average Tru Range (ATR), which is an indicator that measures the volatility of the market.
It is very similar to the Bollinger Bands, with the difference that they use a Simple Moving Average (SMA) as the center line, and the upper and lower lines are plotted based on the standard deviation with the SMA.
Although the original version of this indicator, developed by Chester Keltner in 1960, used an SMA of the to calculate the center line, but in the 1980s it was modified by Linda Bradford, who introduced the ATR in the calculation to establish the width of the channel.
Thus, by using an EMA as a central line, this is an indicator that follows the market trend, whose direction is determined by the slope of the EMA, and given by the same slope of the channel; but at the same time it shows us the market volatility for the analyzed asset, shown as a function of the bands set at a certain value (usually 2) of the ATR.
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**_Example applied to an ETH price chart. Source: Screenshot taken from [Tradingview](https://es.tradingview.com/) and edited in powerpoint._**</center>
So, an upward sloping channel, where the price of the asset moves between the middle line and the upper line, demonstrates the presence of an uptrend. While a downtrend in prices would be given by a downward sloping channel in which prices move between the middle line and the bottom line. And if the channel does not move with a clear trend, it is a sign of a sideways movement or range phase in the market.
On the other hand, the breakout of the upper band may be indicative that an uptrend is going to start, or a downtrend if the breakout occurs with the lower band. Thus, this indicator can help us to confirm trends or the beginning of a strong price movement that can be used to obtain good returns in our operations.
## How are Keltner channels calculated?
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The currently used version of this indicator is given by the following formula:
- Middle Line: 20-period Exponential Moving Average.
- Upper Line: 20-period exponential moving average + (2 x 10-period ATR).
- Lower Line: 20-period exponential moving average - (2 x 10-period ATR).
## How it is used to confirm trends
As I mentioned before, with this indicator the confirmation of a trend is very easy to identify, we only have to pay attention to the inclination of the channel and the movement of prices with respect to the channel. With this we will know if it is a clear uptrend, downtrend or if otherwise it is a sideways price movement, let's see how.
### _Uptrend_
To confirm an uptrend using the Keltner channel we will keep in mind that the channel will have an upward angled direction, but that in addition, prices will move between the center line and the top line of the channel. Let's see an example in the following chart for the BTC/USDT pair at the 1-day time frame.
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**_Confirmation of uptrend. Source: Screenshot taken from [Tradingview](https://es.tradingview.com/) and edited in powerpoint._**</center>
In the image above we can see that for the period from October 1st to November 8th, BTC prices experienced a rise in value from $41400 to approximately $67500. As we can see, in the period indicated Keltner channel has a clear upward angle and we see that prices are moving above the center line, which acts as support, and this is a clear sign of an uptrend that can be very well exploited if a timely entry is made in the market.
### _Downtrend_
Analogous to the previous one, to confirm a downtrend using the Keltner channel we will keep in mind that the channel will have a downward angled direction, and that in this case, prices will move between the center line and the bottom line of the channel. Let's see an example using again the BTC/USDT pair at the 1-day time frame.
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**_Confirmation of downtrend. Source: Screenshot taken from [Tradingview](https://es.tradingview.com/) and edited in powerpoint._**</center>
In the image above we can see that the slope of the EMA changed direction from November 16th, after prices recorded a lower high than the previous one, then we see that the Keltner channel changes its angle and starts to move in a downward direction, with prices moving between the center line and the line, which now acts as resistance, which confirms the downtrend. As we can see, in this move prices went as low as $46000, which shows us the need to confirm trends in time, in order to make trades in line with this move.
### _Lateral movement_
When we are in the presence of a market without a defined trend or a sideways movement, we can observe that the price moves back and forth between the upper and lower lines of the Keltner channel, this market in a range phase is easy to identify as it is characterized by a relatively horizontal center line and channel. Let's see an example with this chart for ETH.
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**_Confirmation of a lateral movement. Source: Screenshot taken from [Tradingview](https://es.tradingview.com/) and edited in powerpoint._**</center>
As we can see in the chart of the ETH/USDT pair, prices keep oscillating around the central line, within a relatively flat channel, where the upper and lower lines act as resistance and support respectively, which is a clear indication that there is no defined trend but a market in consolidation or range.
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In general, Keltner channels are a trend-following indicator, designed to identify the prevailing market trend, which as we well know, properly identifying a trend already sets us on the way to making a trade.
As we saw, identifying a trend with this indicator is very simple, we just have to keep in mind that, as well as other trend indicators, Keltner channels lag the price, something that could make us get out of a position late, that is why we should always confirm signals with more than one indicator; but in general it is very useful for trend trading.
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**_Thanks for coming by to read friends, I hope you liked the information. See you next time._**
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