Today I will continue my indicator series of posts with the study of yet another very interesting indicator which was invented by Chester W. Within the next few paragraphs we will be discussing the mathematical basis of this indicator, the information it provides about price movements and volatility and what uses can we have for this indicator within the development of mechanical trading strategies.

You will see that by analyzing what the Keltner Channels actually represent we will be able to get a clear picture about price and its relationship with volatility, we will be able to come up with sound ideas for the development of automated systems as well as ways in which this indicator can be used to aid the exit management of some trend following systems.

The Keltner Channel is a particularly confusing indicator regarding its mathematical calculation since different authors have assigned different values to the same name making different sources give us different information about how the channel lines are calculated. Originally the Keltner channels simply plotted an X period moving average surrounded by two channels formed by X period moving averages separated from the central line by the past X days average range High-Low value.

The channel forming moving averages were originally calculated based on typical price but later authors have used close as well as open prices to calculate this indicator. Traditionally the indicator was calculated over 10 periods. Despite of all the different ways in which the Keltner channels are calculated the same information is always relayed.

Simple Keltner Channel Trading Strategies Explained - Forex Training Group

We are shown the average of price levels with a channel formed by these same averages separated from the center one by a measure of volatility given either by the Average True Range or the Average Range.

This indicator is therefore telling us how price is behaving relative to measurements of volatility, how much it is what is binary option trading system in comparison to how much it has moved during the past. When price touches the extremes of the Keltner Channels it tells us that price is behaving in a more volatile way since it is reaching beyond the average volatility levels of the recent past.

Keltner Channels and EMA - Forex Strategies - Forex Resources - Forex Trading-free forex trading signals and FX Forecast

The usefulness of this information seems to be limited to how you actually calculate the Keltner channels especially around the number of periods and time frames you use. For example I have found the hourly Keltner channels ak trading home options inc to be that useful on their own as a way to design a full trading system since global forex trading wiki information they convey is not very trustworthy as volatility tends to show too sharply and too frequently within this low time frame.

However using the daily Keltner Channels is a different story since now keltner channel forex factory longer term information exists and increases in volatility tend to signal directionality as these tend fibonacci sequence in forex trading happen when trends are getting started.

However there are also an interesting amount of uses for the Keltner Channel indicator, particularly in the keltner channel forex factory of ranging markets and the creation of dynamic exits. Since this indicator gives us information about how price moves relative to volatility we can use the Keltner channel band opposite to our position as a trailing stop as the movement of our position is trailed against a certain volatility threshold which — if breached — would signal a possible reversal that would take our positions towards losing territory.

This can be usefully used for the creation of some breakout strategies or — more commonly — for the refinement of other strategies that may be wanting to eliminate some entries that happen under these circumstances.

In the end you should analyze your strategy and develop it from the beginning with these possible criteria in mind. In the end the Keltner Channels indicator is a useful mathematical calculation that allows us to judge the movement of price relative to recent volatility. If you would like to learn more about trading strategies and how you can develop your own systems based on understanding and analysis please consider joining Asirikuy.

I hope you enjoyed this article!

Thanks a lot for additional insight into existsing indicators! I find the above material very interesting and educational. Can you please tell me what are the differences between Keltner channels A and B? Thank you very much for your comment: Regarding the difference between Keltner Channels A and B, it seems to be merely their default settings. Definitely this is a redundancy that I will correct within the F3 version of the GG ATR if this is the case.

I will certainly continue to write this type of post until we cover all the most commonly used indicators: Thank you very much again for your comment.

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