When is the best time to employ Keltner Bands in trading?

Keltner Bands are a volatility-based trading indicator that is particularly effective during periods of increasing trends. This is because Keltner Bands consist of a central moving average along with upper and lower bands, which are calculated based on the Average True Range (ATR). When a market is in a strong trending phase, prices tend to move in a more directional manner, which allows traders to utilize the bands to gauge potential price targets and entry or exit points.

In a trending market, the price tends to stay close to the upper or lower band, providing useful signals for traders. A price touch at the upper band might indicate a continuation of an upward trend, while a touch at the lower band may suggest further downward movement. By employing Keltner Bands in these conditions, traders can better identify potential reversals or continuation patterns, enhancing their ability to make informed trading decisions.

In contrast, using Keltner Bands during market flatness or lack of direction does not provide the same benefits, as the volatility is low and the pricing does not exhibit clear trends, making it difficult to utilize the bands effectively.