Here’s a recent question I received…
“If you had to use one indicator, and one only, which would it be?”
Simple… no thought required…
Parameters set to (10,1.5) as my default, varying to (10,2) or (10,2.5) if necessary to ensure a nice snug fit around the price.
You’ll find some basic info here: http://en.wikipedia.org/wiki/Keltner_channel, but the best way to see them is to place them on your chart.
The original use of Keltner Channels as part of a trading strategy, so the story goes, was to buy when price closed above the upper channel line (indicating an uptrend) and to sell when price broke below the lower channel (indicating a downtrend).
I don’t subscribe to that theory.
Instead, I prefer to use a reversion to the mean concept. Depending on the context of the market, I’ll be aiming to buy near the lower band looking for a bounce back upwards, or sell near the upper band looking for prices to fall.
Like all indicators though, please remember it’s a tool. It’s not a complete system by itself.
Market context and price action analysis will tell you the market bias. Your job is to then take trades in the direction of that bias. Keltner channels can assist at this point.
In an uptrending environment, trade opportunity is found in the vicinity of pullbacks to the lower channel. In a downtrending environment, opportunity is found in pullbacks to the upper channel. And in a ranging environment, both may provide opportunity. Some examples follow below; remembering that it’s never as easy as it looks in hindsight.
Nothing magic – standard envelope or channel theory really. But if you’re not familiar with Keltner Channels then have a look at them and see if they have a place in your indicator toolbox.
Hi Lance, please specify exactly the numbers EMA .ATR, MULTIPER regarding the settings. Thankful
Settings should be adjusted according to what you want the indicator to show. As per standard use of all indicators. There is no “Holy Grail” setting. What length trend do you wish to display? Set the EMA to an appropriate amount to capture those moves. What degree of volatility do you wish the bands to contain? Set the ATR & multiplier accordingly.
If in doubt, start with the default settings. And then adjust till they suit the way you wish to use the indicator.
hi dear lance
your setting is multiplier 1.5
atr 10 ?
please say ema/atr/multiplier periods in your default setting clearly
EMA 10, ATR 10, Multiplier 1.5.
It doesn’t matter though. Set the parameters as required for how you wish to frame price – faster/slower, tighter/looser etc.
Consistency is more important than the settings used.