Skip to main content

Keltner Channels

Keltner channels are volatility-based bands that are placed on both sides of an asset's price and can be used to determine the direction of a trend. Keltner channels use the following variables to calculate the upper band and the lower band:

  1. Interval: Interval is the time period for the moving average. For example, an interval of 10 means the moving average is calculated over the last 10 days.
  2. Deviation Multiplier: The deviation multiplier is used to calculate how far both bands should be from the average.
  3. Exponential Moving Average(EMA): A weighted average of recent period prices which uses an exponentially decreasing weight from each previous price/period. There are different ways to calculate the EMA; the Steer Protocol is using the following method:
    EMA=p(deviation/(1+interval))+x(1multiplier/(1+interval))EMA = p * (deviation/(1 + interval)) + x * (1 - multiplier/(1 + interval))
    Where p and x are the previous price and the previous EMA respectively.
  4. Average True Range(ATR): A volatility indicator that shows how much an asset moves, on average, during a given time frame.

To calculate the ATR by hand, you must first calculate a series of true ranges (TRs). The ATR for a given interval is the greatest of the following:

  • Current high minus the previous close
  • Current low minus the previous close
  • Current high minus the current low

The upper band and the lower band are calculated through the following formulas:

UpperBand=EMA+(ATRmultiplier)UpperBand = EMA + (ATR * multiplier)
LowerBand=EMA(ATRmultiplier)LowerBand = EMA - (ATR * multiplier)

The execution of the bundle essentially refers to the calculation of these values, which are then handled by the Steer Protocol.