What is the first step in calculating Keltner Bands?

The first step in calculating Keltner Bands involves finding the 10-day simple moving average (SMA) of the Typical Price, which is derived from the formula (C + H + L)/3. The Typical Price incorporates the closing price, the highest price, and the lowest price over the specified period, providing a balanced view of the price action.

This calculation is pivotal as the Keltner Bands are designed to measure volatility around this average price. By establishing the 10-day SMA, traders set a baseline from which they can then calculate the bands that sit above and below this average based on the standard deviation of the Typical Price or the Average True Range (ATR). This sets the stage for further calculations involving either volatility measures, which are the next steps in the Keltner Bands formulation. Thus, determining the 10-day SMA of the Typical Price correctly captures the essence of price behavior in that time frame, making it the foundational first step in the Keltner Bands calculation process.