Keltner channels are a technical indicator consisting of three lines: a central line that corresponds to an exponential moving average, and two lines, upper and lower, calculated as a deviation from the central line based on the ATR (Average True Range). If you know the Bollinger Bands you will see that both are similar indicators, with the difference that the bollinger bands use a simple moving average (SMA) as the center line and the bands are calculated as standard deviation of this SMA. In addition, the introduction of the ATR for the bands calculation in Keltner channels gives it the feature of being an indicator based on volatility, as well as being a softer indicator than Bollinger Bands.
Keltner channels, based on an exponential moving average, are a trend indicator, a trend dictated by the inclination of the channel. The most prominent use of Keltner channels as a trend indicator is the identification of trend changes when channel breakouts occur as well as the identification of range phases in the market (flat trend). The areas determined by the upper and lower lines can be used to identify overbought and oversold areas.
The development of Keltner channels is attributed to Chester Keltner who introduced in his book How to Make Money in Commodities (1960) the “Ten-Day Moving Average” rule, considered as the original version of Keltner channels. This original version used SMA instead of EMA. The current version of this indicator is attributed to Linda Bradford back in the 80s of the 20th century who introduced the ATR in the calculation of the channel bands.