Keltner Channel

A little-known waterway named after an explorer with the last name of Keltner? An early cable outlet dedicated to programming aimed at a Celtic audience?

Nope. It's an indicator used in technical analysis.

Technical analysis looks at an asset's price movement and uses that information to project how the asset will perform in the future. So...a technical trader would look at a stock chart and look for patterns in the stock's movements. Then they would use those patterns to predict what's likely to happen next.

A Keltner Channel (named after Chester W. Keltner, who introduced the concept in 1960) involves tracing three lines.

First, you draw a moving average (well, a computer does the drawing for you). A moving average calculates the average of recent prices over a set period of time. It "moves" because every day a stock trades, it creates a new price point. That changes the average. The moving average line tracks this changing average.

In the case of Keltner Channels, the moving average is an exponential moving average...meaning that more recent data points get more weight in the equation. So movements that took place a little while ago don't have as much impact as things that happened in the more recent past.

The other two lines of the Keltner Channel appear above and below the moving average. They are equidistant from the moving average line. These two lines trace the moving average to form a channel, or band...like a stream the stock might move in.

Investors using Keltner Channels are looking for situations where the stock price moves either above or below the channel. These circumstances can represent shifts in the stock's trend. For instance, a stock that peeks above the top of the channel might have pushed too far to sustain its advance. It might start losing ground as the trend reverses.

These scenarios can also signal an acceleration of the trend. It's up to the technical analyst to use other information to determine what the move beyond the Keltner Channel means.