There are lots of trading approaches that promise profit but outcome in just confusion and losses at the end. Traders become misguided because they cannot find out the potential trend for the value of the product and the entry point as well. For many traders, such a situation may bring on missed opportunities or even worse huge loss on the financial fronts. This is primarily due to the fact that they use various indicators without fully understanding how to apply them.
Out of all the indicators, perhaps one has been the most helpful in the Keltner Channels area of establishing trends and being an entry and exit guide. However, most traders do not know how to use this indicator to its maximum potential. So many combinations of settings and strategies make it daunting for all but the most advanced and confident traders.
This article will walk you through the only profitable way to trade Keltner Channels, and give you the keys to understand how to set them, identify strong trends, entry and exit, and how best to leverage the knowledge so that your overall trading success is maximized by Keltner Channels.
What Is Keltner Channels?
The Keltner Channels are made up of three lines. In the middle is the exponential moving average and two outer bands placed at a distance based on the average true range. Standard settings for this indicator involve using a 20-period EMA, with outer bands using a multiplier of 2, as well as an ATR length of 10. Feel free to adjust these to suit your discretionary trading style, but use them uniformly.
- Middle Line: This serves as a trend indicator and also as a possible retraction barrier.
- Upper and Lower Bands: This band tracks the volatility in market action which also helps identify if the market is overbought or oversold.
How to Set Up Keltner Channels for Trading
To trade with success using Keltner Channels, you have to set up your chart in the following way:
- Select Your Platform: It performs well on platforms like TradingView where you can modify whatever indicators you want.
- Configure the Indicator:
- Set Keltner Channels to 20-period EMA.
- Multiply outer bands by 2.
- Set ATR to 10.
This is a good starting point for finding the trend and volatility in the markets.
Finding Strong Trends
Follow the basic principle of trading: focus on strong trends. The Keltner Channels help you do this easily. Here’s how:
- Search for Touch Points: Observe price action at which points it touches the outer Keltner Channels. A touch of the lower band indicates potential bullish reversals while touching the upper band indicates bearish reversals.
- Confirm with EMA: 20 EMA as support or resistance level. The strength of the trend is confirmed if the price stays above or below it for more time.
- Wait for the First Touch: When the price touches the lower Keltner Channel for the first time after a downtrend, it gives an opportunity to buy. On the other hand, touching the upper band in an uptrend suggests a selling opportunity.
Entry Signals
After setting a strong trend, you need to find out where and how to enter the trade. Here’s the procedure:
- Wait for Confirmation: In this situation, the first confirmation you will wait for when the price touches the lower Keltner Channel is when the first confirmation candle closes above the 20 EMA. That, of course, confirms that the trend is starting to go bullish.
- Additional Indicators: Because Keltner Channels are indeed information-rich, you can complement those with the use of other technical indicators such as RSI or MACD to confirm your entry signals. You might expect an RSI reading below 30 to indicate a reversal of bearish trends or above 70 for bullish trends.
- Set your entry: Open the trade at the level of the high candle of the confirmation candle for an upward trade or at the low point of the confirmation candle for a downward trade. This will reduce your false signals.
Exit Signals
Getting out of a trade in a timely and effective manner is as important as when to enter. Here is how you can determine your exit points using Keltner Channels:
- Look Out for Price Action: Now, be on the lookout to see how the price is behaving in relation to those Keltner Channels. Once it touches the other channel, it’s time to get ready for a change of direction.
- Trading with Trailing Stop: Set up your trailing stop to be at the 20 EMA. When this happens during a move down that pushed the price underneath the EMA against the top Keltner Channel, you’re going to want to close up the position.
- Set up profit goals: Off of the average true range (ATR). Assume the ATR is 1.5; you may use a profit goal of 1.5 times the ATR above entry on a bullish trade or below on a bearish trade.
Keltner Channels vs. Bollinger Bands
Most people misunderstand Keltner Channels as Bollinger Bands. Just like each other, they are used for a similar purpose; however, the underlying aspect they measure is different:
- Keltner Channels: These are volatility measures that rely on ATR, which is Average True Range, but have an emphasis on the movement of prices.
- Bollinger Bands: These rely on standard deviations and inform about the volatility of the market.
Understanding the difference between these makes your strategy to trade even more potent. Make use of Keltner Channels to detect trends while using Bollinger Bands to keep track of market volatility that can easily result in overbought or oversold situations.
Conclusion
Through this article, you are maximizing trading by identifying strong trends using the Keltner Channels trading strategy. The trading strategy makes good entry and exit decisions.
- Strong Trends Identification: Relative to Keltner Channels in Price Actions
- Confirmation Signals for Entries
- Exits: Using the 20 EMA and profit targets based on ATR.
Implementing the Keltner Channels strategy will entrench you into a method of trading that orients you toward even the most compounded of trading situations and leads you toward higher financial success. It doesn’t matter if you are just starting out or you are a seasoned trader because learning this concept can help you change your trading outcomes drastically.
