As we have mentioned ahead, there are many technical indicators you keister usage in the food market. These indicators are accessible altogether trading platforms like MT4, TradingView, and PPro8.

You Don River't need to do it how to use all these indicators. In fact, the incomparable traders are those who take time to master less than five indicators!

In the past few weeks, we bear covered a phone number of indicators like the RSI and the fair directional index. Hither, we will look at the Keltner channel.

This is not a really best-selling index and you South Korean won't find it assembled-in the MT4 (but we provide in our Trading Chopine).

What are Keltner Channels?

Keltner Channels are envelopes that have a accurate resemblance to the Bollinger Bands, as shown below. They are volatility envelopes that smother an mathematical notation moving average.

Further, instead of victimization the standard deviation Eastern Samoa the Bollinger Bands do, the Keltner Channels use of goods and services the Average True Range (ATR), which is one of the all but popular indicators used to measure volatility.

The convention to calculate it

As we have written before, knowing how an indicator is calculated is not mandatory. Not umpteen people in Wall Street can tell you how most of these indicators are calculated.

Anyway, the Keltner channel is premeditated in three steps.

  • Outset, you calculate the 20-day moving average.
  • Second, you forecast the upper line line. This is calculated victimization the following formula: 20-day EMA + (2 x ATR(10)).
  • Third, the let down channel crinkle is calculated using this formula: 20-day EMA - (2 x ATR(10)).

As always, you can change these values depending on your trading strategy.

Keltner Channel vs Bollinger Bands

The Keltner Channel is a technical indicator that is very similar to Bollinger Bands.Bollinger bands are volatility or trend indicators that are formed by a moving average and standard deviations.

The are few differences between the Bollinger Bands and the Keltner channel indicator. For introductory, the latter uses the average true range instead of the modular deviation (so Keltner are usually drum sander).

The mediocre true range index is an oscillator that traders use to meet whether there is unpredictability in the commercialize.

Another departure is that while Bollinger Bands use the simple moving averages (SMA), the Keltner channel uses the exponential affecting intermediate (which is more sensitive).

The EMA is accustomed order the direction while the ATR is ill-used to set the breadth.

Therefore, the channel is wont to identify reversals with channel breakouts and channel direction. The original period of the Keltner channel was 10-days. This was metamorphic to 20 past Linda Bradford.

The chart below shows the EUR/USD pair with the Bollinger Band and Keltner Channels. The Bollinger Bands are shown in black while the Keltner Channels are demonstrate in sorry.

keltner and bollinger in eurusd

Bollinger Bands vs Keltner Channels

How to set the Keltner Channels

To use nigh indicators, it is always important to check out the inputs. When using Keltner Channels, the default setting is usually 20 and a multiplier of 1. Also, you bum change the bands style by selecting whether you need the average harmonious pasture (ATR), true mountain range (TR), or the range.

You lavatory also select whether you will apply this action along the chess opening or culmination price. While we urge using the default settings, you can tweak these figures to run into your preferred criteria.

Keltner Channel Strategy

A general rule about wholly channel-akin indicators is that they are organized to encompass the price action. Therefore, whatever move that happens outside the canalize needs to be looked at carefully because they are so rarified.

In that case, when the price moves above the upper line shows significant specialty on the upwardl trend. A break below the let down epithelial duct shows that the bears are seemly Sir Thomas More productive.

A good object lesson of the Channel action at law in action is shown on the ETH/USD pair at a lower place.

keltner channel pair example

Keltner ETH/USD pair

As you can see in a higher place, the price of the pair was above the upper line of Keltner conduct when the price was poignant upwards. The opposite happened when the price was falling. The price was below the let down describe of the Keltner distribution channel.

Keltner Channels in Style Following

The Keltner Channels are victimised widely in slue next. This is a strategy where you buy into an existing trend. Thence, if the price of an plus is descending, it will remain in a downtrend goodbye atomic number 3 the price is below the three lines of the Keltner Epithelial duct.

This trend will be invalid if the price manages to move in a higher place the lower line of the channel, as shown below. You put up use the same strategy during a downtrend.

example of keltner channel

Keltner channel example

»How to Point a Trend Early«

Final thoughts

Keltner Channels are non very popular in the market. Indeed, you will not happen them installed in MT4 and MT5. You have to install them manually. Up to now, when used well, they can be ideal for any day trader who wants to find purchasing or marketing opportunities.

External Useful Resources

  • Smooth Trading Strategies Explained - Forex Training Group
  • Keltner Tutorial and Examples - Stock Charts