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 [U]very little lag[/U] 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 :
The Trading Game
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. :eek: :eek:
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 [U]does not work[/U] 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).
Now the hyperlinks as promised :
Day Trading with Keltner Channels
Online Swing Trading - Keltner Channel
Trading the BSE using Keltner Channels