The custom indicator Keltner Channel for Metatrader is based on the popular technical indicator developed by the trader Chester W. Keltner in 1960. It is similar to Bollinger Bands and Envelopes in its form and in the way it is used. It consists of three lines:
- The middle line is usually a simple moving average of 10 periods applied to the typical price (highest price + lowest price + closing price) / 3.
- The top line is calculated by adding to the midline the price range for the period (maximum value-minimum value).
- The bottom line is calculated by subtracting the midline line from the price range of the period (maximum value-minimum value).
In this way, this indicator generates a channel based on the volatility of the price of the instrument. This version of the indicator allows the modification of the parameters of the moving average. The most common strategy to trade with this indicator is:
- Open a buy position when the price closes above the upper band.
- Open a short position when the price closes below the band were leaving.
This method offers better results for the opening of new positions especially if we are trading in the direction of the prevailing trend. For trade exits, it is recommended to use quite conservative Stop Loss since it is not uncommon that this indicator generates false signals. On the other hand, taking profits for the signals that produce winning trades can be made near or in important resistance or supports levels or once the price starts to move against the trade and crosses the midline.
Some experienced traders suggest using the Keltner Channel in conjunction with other indicators to confirm their signals.
You can download this indicator for Metatrader 4 and 5 using the following link: