Thank you Moneda (love your avatar!)
Because the BB middle band can rise or fall steeply and the MACD can also rise or fall steeply, it means that the
resultant, the price action, can also rise or fall steeply.
So what has this to do with the Keltner channel?
The Keltner channel, like the Bolinger band has 3 bands - middle, upper and lower.
I will now explain how it all works............................
Procedure
Step 1
Once we spot the completion of a candlestick pattern (say the evening star) on the
main chart, we then open a
5 minute chart with the following indicators :
1) A MACD (standard settings)
2) Bolinger bands (standard settings).
3) A Keltner channel with settings.......period 5, factor 1.
That is all.
However, care must be taken with colours. The BB and Keltner must be clearly different - both the BB and Keltner have middle bands. Make the colours clear. eg one blue, the other red.
DON'T CONFUSE THE TWO!!
Step 2
At the point of entry draw the MACD vector on the MACD indicator. (use line drawing facilities in your charting program).
At the point of entry draw the
middle BB vector on the middle band.
Now estimate or draw the RESULTANT. This will be the direction of the price action for the next few candles.
You can draw the resultant right over the middle BB if convenient - as long as everything is visible to you.
Step 3
The rules
If the resultant is going up (price action up) then enter at TOP keltner band.
If the resultant is going level (price action level) then enter at MIDDLE keltner band.
If the resultant is going down (price action down) then enter at BOTTOM keltner band.
Next post - some real case senarios