You are probably talking about the TTM Squeeze indicator.
The Keltner Channel is plotted on a chart just like the BBands but it usually has a narrower range. When the BBands contract and come INSIDE the Keltner channel then you have a highly consolidated area of price activity.
Usually something will come along and cause the price to explode out of this condition in one direction or the other.
As far as the Keltner channel "kicking in", I do not know what you mean. It is a visual tool, just like the BBands.
Glad to see some more people have been reading 'Mastering The Trade'??? Am I right???
Pip Daddy has answered everything according to my understanding (except that Mr Carter goes long or short depending on the direction of the breakout in relation to the + or - value of a momentum indicator).
The one thing that I have found is that there does not seem to be 'de facto' default settings for Keltner Channels i.e. John Carter uses HIS parameters and if you look on the Internet you'll find others that state that THEIR parameters are the default parameters and this will make a difference to how this setup works i.e. to quote John Carter: 'how narrow is narrow' (referring to the Bollinger Bands). Problem is that by changing the Keltner Channel parameters you are then 'defining' your own 'narrow' and then again: 'how narrow is narrow'??? See my point.
Also: most trading platforms that I have seen don't include Keltner Channels BUT I have the formula (found on numerous places on the Internet) so if you need it 'coded' into whatever platform you're going to use then let me know and IF I CAN I will do it for you i.e. depends on the platform itself although having said that it's really not a complicated thing to 'code'.
Thank you VulcanClassic, for supporting my thread.
I have done some research on the Keltner and exploit it for all it is worth in trading candlesticks.
The Keltner channel is a probability channel. Candles outside this channel are likely to stay outside and go up or down depending on the trend. The Keltner is based on Average True Range and, as such, is a volatility based indicator.
It is extremely sensitive to volatility and has very little lag to it.
Even so, I use it only on a 5 minute chart, ie the main chart chopped up into little bits.
I find the "squeeze indicator" too complex for general use in trading.
However, all these indicators still suffer from lag, and used alone will not necessarily offer better trading. To support my claim I submit the following important hyperlink :
I have found that the Bolinger band, when set at one standard deviation instead of two, offers earlier entries than the Keltner. Very important pips are made earlier before the whole trade collapses. Furthermore, the Bolinger is available on every charting package. I have tested a number of different settings for the Keltner - both the period and the factor.
Exits on the Keltner are very difficult. The hyperlinks below show no decent exit methods. I have tried MACD and Stochastic (useless because they are too late), Commodity channel - takes you out too early, Fibonacci - nothing works consistantly and trailing stop loss - can you get this to meet every requirement? (I think not).
In the end a target profit seems the best solution.
The Keltner method can offer some spectacular profits but also equally spectacular stop losses - the drawdowns (with a stop loss) are such as to need a strong stomach.
In summary, I still feel that candlestick trading (the simplest type of trading), is vastly superior. The profits are almost guaranteed - and that under all conditions.
Keltner trading on its own does not work in ranging markets. You are risking huge drawdowns and exits are very difficult.
To me, Keltner trading and its derivatives (the squeeze indicator) are just more indicator trading methods with all their disadvantages.
Keltner trading is only for the very experienced and a pre-requisite would be a thorough knowledge of candlestick trading to allow you to spot the dangerous entries and spot safe exits before the whole trade collapses (which they do in a spectacular way).
No worries Dale. You, like Rhodytrader and Tonymand, are much more knowledgeable than I am.
You MUST be joking!!!
Fantastic post of yours above!!!
I agree with you totally i.e. about Keltner Channels (and ALL the other 'Channels') being for the very experienced (like John Carter for example). I spent a lot of time with Keltner Channels, Donchian Channels, STARC Bands, and Envelopes last year (to name a few) but as you say: the entries were relatively easy but with all of them, try as I might, the exits were the problem.
I've 'gotta tell ya' that I've been looking at Steve Nison's book and I must say that the way he explains things could POSSIBLY work for me SOMETIME in the future i.e. it's something I've 'battled' to grasp since the beginning as you probably well know. One thing I DID find interesting (sorry: I have to have a 'dig' here at the candlestick trading experts just for fun) is that there is a section on RSI!!! What??? RSI??? Wilder's RSI??? Can't be!!! NOT in a book on candlestick trading techniques surely!!! (Like I said: just a 'dig' for fun because you KNOW that I'm the 'Wilder junkie' on the site)!!!
I use the Squeeze indicator on my charts everyday, but I don't use them the way TTM would instruct you to.
Think about this... what is the indicator designed to do? It alerts you when the bands constrict together right? I.e. it identifies when the market is consolidating. And as an idicator to identify consolidation is does a fantastic job.
I then just use fib grids to idenify entries on the breakouts of that consolidation.
If you can use some kind of breakout method with the squeeze it can be a very powerful tool. Just don't use it as a standalone or as the TTM folks would instruct you too, it will take all of your money.