Bollinger Bands and Keltner Channel (BB and KC)

The Bollinger Bands and Keltner Channel (BB and KC) indicator combines two volatility-based envelopes to help traders identify market squeeze conditions, potential breakouts, and overextended price levels.

Usage

The tool is primarily used to identify "Squeezes" and volatility expansions. When the Bollinger Bands (plotted as solid lines and shaded areas) contract inside the Keltner Channel (plotted as circles), it indicates a period of low volatility often followed by a significant price move.

• Overextension: Prices trading outside the outer Bollinger Band (Standard Deviation 2) may indicate an overbought or oversold condition.
• Trend Strength: Price maintaining its position between the inner (SD 1) and outer (SD 2) Bollinger Bands often suggests a strong trending environment.
• Breakouts: A close outside the Keltner Channel following a squeeze can signal the start of a new momentum phase.

Details

This script integrates three distinct layers of volatility analysis:

1. Bollinger Bands (Outer): Uses a Simple Moving Average (SMA) basis and a standard deviation multiplier (default 2.0) to define the outer range of price action.
2. Bollinger Bands (Inner): Uses a lower standard deviation multiplier (default 1.0) to create a secondary zone for trend tracking.
3. Keltner Channels: Uses an Exponential Moving Average (EMA) basis and Average True Range (ATR) to define a channel that typically represents the "normal" trading range.

By overlaying these, traders can visualize the relationship between standard deviation (BB) and range-based volatility (KC).

Settings

• Length: The lookback period used for both Bollinger Band and Keltner Channel calculations.
• Source: The price data point used for calculations (default is Close).
• Band StDev 2: The multiplier for the outer Bollinger Bands.
• Band StDev 1: The multiplier for the inner Bollinger Bands.
• Use True Range: When enabled, the Keltner Channel uses True Range for its calculation; otherwise, it uses the high-low range.
• Keltner Range: The multiplier applied to the Keltner Channel range.

FAQ

How do I identify a "Squeeze" with this indicator?

A squeeze occurs when the outer Bollinger Bands move inside the Keltner Channel circles, indicating that volatility is historically low relative to the recent range.

What do the circles represent?

The circles represent the upper and lower boundaries of the Keltner Channel, providing a visual contrast against the solid lines of the Bollinger Bands.

How can I access the Bollinger Bands and Keltner Channel (BB and KC)?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.