Hi Traders. Philip Thygesen from Stock-Market-Strategy.
Before I start I just want to say that trading involves risk and hard work. So please do
your own due diligence before trading real money. Today I am going to talk about Keltner
Channels. I will give you some background information about Keltner Channels and then
show you some charts about what this indicator is about. Finally I will give some ideas how
to trade using Keltner Channels in conjunction with other indicators and/or chart analysis.
If you go to our website www.stock-market-strategy.com you will find a tab called education, technical
analysis and Keltner Channels. Here you will find a written summary including a chart showing
you how to use Keltner Channels. This is made to make it easy for you to keep track of the
information. You might even print this page out so you can have it in front of you while
writing your trading plan or back testing the ideas shown here. Background Information
Keltner Channels Keltner Channels were first introduced by Chester W. Keltner in his book
How to Make Money in Commodities and have since then evolved into what we use today.
Don’t get fooled by the title of the book. This indicator can be used on any market such
as stocks, Forex and any other instrument you may want to trade. It’s a little similar
to Bollinger Bands but calculated by using Average True Range and a Simple Moving Average
which is also called midpoint. This is what we call midpoint. This means that the upper
and lower bands follow each other, like an envelope around price. You see both of them
moving down here and both of them moving up. And down. What length to choose. I chose a
20 Moving Average. It’s the default settings. But you might want to choose a 10 Moving Average.
You have to back test and forward test to see what length gives you the best result.
Because the Keltner Channel works like an envelope around price we can consider a move
to the upper band as overbought and a move to the lower band as oversold. How To Trade
Sideways Market Using Keltner Channels So how can we trade this? Well first identify
sideways market. We do that by looking at the MA and waiting for relative flat MA. Then
we also want to see price oscillate around the MA. Second we want to identify moves up
the upper band for overbought signals and moves down to the lower band for oversold
signals. And third we want to see a price bar close outside the Keltner Channel. And
then inside again. That’s your entry. And your target is at the opposite side of the
Keltner Channel. Here you are getting another signal. We have a close outside and then we
got a close inside Keltner Channel. And our target is at the opposite side of the Keltner
Channel. Again you have a setup here. Got a close outside happening at this bar first.
Not this bar. But this bar. Then we got a close inside. That’s your entry. And your
exit is at the opposite side of the Keltner. Over here we have a bar closing outside Keltner
Channel. And then inside again. This is not an entry because we have still not seen a
flattening MA and we have not seen the price oscillates around the MA. So at this time
we don’t have the right market conditions for this setup. This sideways market. How
To Trade A Trend Using Keltner Channels Ok. You have seen how to use Keltner Channels
in sideways market. But how do we when we have a trending market? I like to trade with
the trend if the strength of the trend is strong enough. And Keltner Channels help me
determine whether the trend is strong enough. First I of course have to identify the trend.
I see that my MA is up sloping. So the trend is up. Second I will be looking for multiple
closes and higher highs outside the Keltner Channel. This helps me determined the strength
of the trend. And third I will be looking for a signal, in this case it’s a Flag. I
have got a close outside the Flag and that’s my entry. If you look at this high over here
or this low you can see that we get rejection at the Keltner Channel and we also get a rejection
up here and back into it again. It’s very important to be able to see the difference
between this or this. Here we get multiple closes and higher highs outside the Keltner
Channel. And then you can look for your signal. Don’t confuse this with this over here. This
ends today’s video. I hope you have enjoyed it.