What is Keltner Channel (KC)? Instructions for installing and using the Price Channel effectively

Keltner Bands Keltner Channel (Keltner Channel) is an extremely powerful and effective indicator, signaling traders anomalies in price behavior. Even so, traders are more likely to use Bollinger Bands (An indicator with the same structure as the Keltner Channel), so Keltner Channel is much less known and known by many traders.

However, the Keltner Channel is really an interesting indicator, not only that, but they also overcome some of the disadvantages that Bollinger Bands are suffering from. So, if combined with other analysis and indicators, the Keltner Channel will become a powerful weapon, making it easy for you to profit from forex.

What is the Keltner Channel indicator?

The Keltner Channel, or Keltner Channel, was first introduced by trader Chester W. Keltner in 1960, in the book "How To Make Money in Commodities" (How to make money on the commodity market).

This is a ribbon that surrounds and runs under the price, including a central line, an upper channel line and a lower canal line. The two upper and lower channel roads are one or more ATRs from the center line. This indicator is a lagging indicator, belonging to a group of indicators showing price ranges, similar to Bollinger Bands.

The Keltner Channel indicator includes the following components:

  • Centerline: This is the moving average MA, which is usually the 20 EMA.
  • Upper canals: Calculated by taking the center line plus one, two or three ATRs.
  • Lower channel line: Calculated by taking the center line plus one, two or three ATRs.

It is easily recognized as a 2-in-1 indicator, a combination of the EMA and the ATR indicator. If the EMA indicates a price trend, the ATR again indicates the volatility of the candle. Thanks to this combination, Keltner Channel will tell us whether the current price trend is up or down with information about the range of price fluctuations.

Accordingly, when drawing the Keltner Channel, we will set the parameters for this indicator as follows:

  • Choose MA type: There are many options for MA lines such as SMA, EMA, DMA, WMA. Each type of MA has its own characteristics. Usually, we choose EMA as the centerline.
  • Parameters for MA: High parameters will show long-term trends and type of noise. But if you want an indicator that responds quickly to prices, you can choose a lower spec. The default parameter is 20
  • ATR Specs: How much ATR do you want the upper and lower canals to be at the center line? An ATR will be a bit short because the Keltner Channel will then stick to the price and be continuously broken. 4 ATR may be a bit long because the price rarely touches the 2 channels of the indicator. Depending on the market, you can customize this parameter accordingly. Choose parameters so that Keltner Channel covers most of the price chart, about 90-95% is reasonable.

The meaning of the Keltner Channel indicator

First, the slope of the channel will indicate the trend of the price. If the channel is sloping up, the short-term trend at the present is up while if the channel is sloping down, the short-term trend at the moment is down.

Second, the upper channel plays the role of resistance while the lower channel plays a supporting role. When the market has not had a clear trend, prices usually tend to bounce down when touching the upper channel and pop up when touching the lower channel. However, when the uptrend appears, the chart may continually touch the upper channel line. Similarly, when the market is down, prices can constantly touch the lower channel.

Differences between Keltner Channel and Bollinger Bands

Bollinger Bands is a classic indicator that all introductory papers on technical analysis all mention. Bollinger Bands use the standard deviation of prices to add to the centerline, creating the upper and lower boundaries. It is this way that makes Bollinger Bands of varying width, they react very strongly when prices fluctuate suddenly.

Meanwhile, Keltner Channel uses ATR to add to the centerline to make this channel more stable and easy to observe while providing clearer support / resistance levels. This is why many traders prefer Keltner Channel over Bollinger Bands.

How to install the Keltner Channel indicator in MT4 / MT5

Because Keltner Channel is not available in MT4 software, you must download the indicator manually and add it in MT4, if you want to use it.

To install it first, you can download the Keltner Channel indicator here. Then extract the file and copy it again. Next, open up MT4 software and proceed as follows.

Step 1: Select "File" then select the "Open Data Folder" line as shown below:

Now your MT4 platform will be opened, navigate to the MQL4 folder and click on it as shown below:

After clicking MQL4, you continue to select the "Indicators" line as shown below:

Step 2: Install the Keltner Channel indicator

When the "Indicators" folder opens, you only need to copy the Keltner Channel file that you have downloaded and unzipped before.

Next, turn off the MT4 software and turn it back on.

For your chart to appear the Keltner Channel, double click on the Keltner Channel in the "Navigator" window. A dialog box will appear, you just need to click OK to finish.

Instructions for using the Keltner Channel indicator

There are many ways to use the Keltner Channel, here are 3 effective ways to use this indicator:

Strategy 1: Trade a breakout with the Keltner Channel

Trading with breakout means that we will catch a new trend as soon as it forms. If the market is in a "gloomy" state, prices will often go up and down between the two Keltner Channel channels. However, when there is a booming new trend, it will trigger the price to move sharply in one direction, breaking the Keltner Channel's channel. Our job now is to follow the direction of the market movement when either channel is broken.

But keep in mind that fake breakouts are always rife in the market so it is imperative that at least one more trend indicator is needed to support trading in this way, such as the ADX indicator. How to enter the command as follows:

  • Make sure that the Keltner Channel is going sideways initially, which means the market has not had a clear trend.
  • When a breakout occurs, the ADX must be above 20
  • Buy when the candle closes above the Keltner Channel, sell when the candle closes below the Keltner Channel
  • The stop loss is placed at the bottom of the nearest candle and profits when the price returns to touch the centerline of the Keltner Channel

Strategy 2: Trade by support / resistance with Keltner Channel

Prices can either move in a trend or move within a trading range. It is said that trading range is the killer for new traders. The market increased but had not reached the profit-taking point, it turned down, causing the new traders to panic to buy and then sell. As soon as they entered the sell order, the price suddenly increased again, the result then you know it.

However you need to know most of the time the forex market moves within the trading range so we need to prepare a strategy to trade in this state.

Here, you can combine it with an indicator like RSI to proceed into the command. The way to enter the command is as follows:

  • Make sure that the Keltner Channel is moving sideways, not trading this way when the channel line is sloping up or down
  • Enter the buy order when the RSI drops below 10 and the price is almost touching the lower channel of the Keltner Channel. The stop loss is placed at the bottom of the lower channel, taking profit when RSI rises above 90
  • Enter the sell order when the RSI rises above 90 and the price nears the upper channel of the Keltner Channel. Stop loss is placed above the upper channel line, taking profit when RSI rises above 90

Strategy 3: Deal with the pullback with the Keltner Channel

Pullback trading is a way of trading in a long-term trend but waiting for the opposite wave to enter the order.

See the example above. Price is in a strong uptrend, expressed by the slope of the Keltner channel. We shall buy when the price rebounds and touches the centerline of the Keltner Channel.

Remember not to buy when the price touches the upper channel line in an uptrend and not sell when the price touches the lower channel line in a downtrend.

summary

Keltner Channel is a strong indicator and bring high efficiency. We hope through this article you have a good understanding of the characteristics as well as how to use the Keltner Channel indicator to be able to profit from forex. Good luck!


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Author: Tin Nguyen

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