Trading with Keltner channels seems to be useful because it is considered one of the most powerful and common technical indicators for day traders in Hong Kong. This channel will use the average price of a currency and market volatility to draw an upper, middle, and lower line. All these lines will move along with the value, and the entire chart will look like a channel.
How to calculate the Keltner Channels
Keltner Channels have been developed with a combination of two different indicators – the Average True Range and the Exponential Moving Average (EMA). The Moving Average is considered the mean price of a particular period’s number. The exponential variation will provide you with higher accuracy for the latest values. The Mean or Average True Range is the measurement of market volatility. To estimate the true range of the market, you can follow these steps –
TR = the value of the current high – the value of current low
TR = the absolute value of the current high – the absolute value of the previous close
TR = the absolute value of the current low – the absolute value of the previous close
By averaging the values, you will get the moving average of the true ranges, also known as average true range (ATR).
To calculate the Keltner Channels, an investor can follow this equation –
Upper band = Exponential Moving Average + (Average True Range x multiplier)
Middle band = Exponential Moving Average.
Lower band = Exponential Moving Average – (Average True Range x multiplier)
The value of the exponential moving average can be fixed to a particular value. For day traders, the value should be around 15 to 40. A common multiplier for the average true range is considered 2. It means that the upper channel will be drawn 2 x ATR above the Exponential Moving Average, and the lower channel will be drawn 2 x ATR below the Exponential Moving Average. When you try to use the Keltner channel, trade with Saxo capital markets as they offer a robust trading platform.
A Forex trader can adjust this value based on his or her trading, and one may also find 2.3 or 1.7, though 2 is a standard value. A higher value indicates that the channel will be wider, and a smaller value indicates that the channel will be narrower.
How can a trader adjust the indicator?
Compared to other technical indicators, Keltner Channels are considered more useful and popular as they can draw a visible trend more accurately. When the price of a currency moves upward, it should obviously reach or come near to the upper channel. Most of the time, the price stays above the lower channel drawn by the indicator and barely dips below the middle one. During the downward movement, the actual price reaches or comes close to the lower channel. Most of the time, the graph stays below the upper channel and barely pushes above the middle one.
1. Trend-pullback technique
The trend-pullback strategy is quite general once you can set up the indicator. Generally, it is recommended that you buy the currencies once the actual price chart pulls to the middle channel. Investors should set the stop-loss order about halfway between the lower and middle channel, and they can also set the take-profit limit near the upper channel.
2. Breakout technique
This can help an investor capture a bigger move, which the pullback strategy may miss. This strategy is mainly used during the opening of the market because, at this point, the market makes a huge move. Business people can use the middle channel as the exit point, and they don’t have to set any target-profit limit for this trade. Exit the business whenever the graph touches the middle channel.
As a result of showing three secure channels to help you predict the movement of the price, Keltner Channels are considered one of the safest technical indicators to use to predict the market condition. You can practiceusing this indicator using the demo account.