In technical analysis, there is a small difference between Keltner Channels and Bollinger Bands®. Before examining the differences it is important to understand that these indicators are both used to gauge volatility. Buy and sell signals are generated by each indicator when the price of the underlying asset surpasses the upper or lower channel and crosses back above or below the key channel level. For bulls, a move below the lower channel signals oversold conditions, and buy signals are generated when the price rises back above the lower channel. For the bears, sell signals are generated when the price move above the upper band and then closes back below.

Taking a look at Bollinger Bands®, the channels are created by using the Standard Deviation of the underlying asset while Keltner channels use the Average True Range. It is important to note, that aside from how the channels are created, the interpretation of these levels are generally the same.

Bollinger Bands®

Taking a look at the chart of Starbucks Corp. (SBUX), you’ll see that buy and sell signals are generated at the blue and red arrows respectively. (For more on this topic, check out Using Bollinger Band® "Bands" To Gauge Trends)

Keltner Channel

If you look closely, the chart of Starbucks (SBUX) with Keltner Channels as an overlay instead of Bollinger Bands®, you’ll see that they look similar, but because of the difference in how the band is calculated the decision points fall at slightly different levels. (For more, check out Capture Profits Using Bands And Channels)

Since Keltner Channels use average true range rather than standard deviation, it is generally more common to see more buy and sell signals generated in Keltner Channels than when using Bollinger Bands®. For instance, some traders would have consider three sell signals using Bollinger Bands® vs four sell signals using Keltner Channels. In practice, Bollinger Bands® are more popular among active traders because of the statistical significance of using standard deviation compared to the average true range.

  1. Who created Bollinger Bands®?

    Learn about John Bollinger and his widely followed indicator, Bollinger Bands. Explore how traders interpret the different ... Read Answer >>
  2. Are Bollinger Bands® useful for analyzing securities with very low volatility?

    Learn more about Bollinger Bands, a tool based on standard deviations of moving average that can be applied to both high ... Read Answer >>
  3. What is the logic behind using Bollinger Bands® as an indicator of volatility?

    Discover the logic behind using Bollinger Bands as a measure of price volatility for a security, and how the bands adapt ... Read Answer >>
  4. How are Bollinger Bands® used in forex trading?

    Use Bollinger Bands in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility ... Read Answer >>
  5. Are Bollinger Bands® useful for analyzing highly volatile securities?

    Discover how the dynamic nature of Bollinger Bands makes them a very useful indicator for securities that have historically ... Read Answer >>
  6. Are Bollinger Bands® used for investing or trading?

    Find out how investors or traders would use Bollinger Bands and why they are more useful for technical traders than long-term ... Read Answer >>
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