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Keltner, Donchian and Regression Channels: Price Channel Formulas

Three price channels explained: Keltner (EMA20 ± 2×ATR10), Donchian (20-day high/low) and a 50-session linear regression channel with slope.

Reviewed · Sources at the end · How Vyreon measures
Vyreon's per-security reports are not live yet; this page describes what they will measure. Examples are illustrative.

A price channel is a pair of lines drawn above and below the price to show its recent range or typical spread around a center line. Vyreon reports three common channels: Keltner channels (built on volatility), Donchian channels (built on recent highs and lows) and a linear regression channel (built on a fitted trend line).

Keltner Channel Formula

Middle = 20-session exponential moving average (EMA) of the close Upper = middle + 2 × ATR(10) Lower = middle − 2 × ATR(10)

The width comes from the Average True Range, so the channel widens when daily ranges grow and narrows when they shrink. It looks similar to Bollinger Bands, which use the standard deviation of closes instead of ATR.

Donchian Channel Formula

Upper = highest high of the last 20 sessions Lower = lowest low of the last 20 sessions Middle = (upper + lower) ÷ 2

Donchian channels simply mark the range. A close at the upper line is a new 20-session high.

Linear Regression Channel

Vyreon fits a straight line by least squares through the last 50 closes. The middle line is that line's value today. The upper and lower lines sit 2 residual standard deviations away, where the residuals are each close's distance from the fitted line.

The slope is reported per session as a fraction of today's fitted value.

Illustrative example: a slope of +0.1% per session means the fitted line rises by about 0.1% of its value each session, roughly 5% across the 50-session window. A slope near zero means the closes have no clear linear drift.

How Vyreon Calculates Them

All three use daily bars adjusted for splits and dividends. The EMA is seeded with a simple average of its first 20 values and then uses a smoothing factor of 2 ÷ 21. ATR(10) uses Wilder's smoothing. The Donchian window and the regression window both include the latest session. The regression residual standard deviation divides by the number of points (50).

What Price Channels Do Not Tell You

  • A close at or beyond a channel line describes where the price is, not where it will go. Some traders read it as a breakout, others as stretched; both are conventions.
  • The lines depend on the chosen windows and multipliers. Different settings draw different channels.
  • A regression line fitted to the past assumes nothing about the future; its slope changes as new sessions enter the window.

Related: Bollinger Bands · ATR · moving averages · Ichimoku cloud · pivot points

Sources

  • Chester W. Keltner, How to Make Money in Commodities (1960): the original channel, a 10-day average of the typical price with lines set by the 10-day average daily range. The EMA ± ATR form used here is a later variant commonly attributed to Linda Bradford Raschke.
  • Richard Donchian, credited with the channel of recent highs and lows that bears his name.
  • J. Welles Wilder Jr., New Concepts in Technical Trading Systems (1978): true range and Wilder's ATR.
  • Adrien-Marie Legendre, Nouvelles méthodes pour la détermination des orbites des comètes (1805): the method of least squares.

Reading a close beyond a channel line as a breakout or as stretched is a trading convention; we know of no peer-reviewed source establishing it.