Reversal trading system based on Keltner channels and Bollinger Bands

The trading system that we will explain below is based solely on two indicators, the Keltner channels, and the Bollinger Bands, which are actually quite similar. It is a price reversal system that tries to find the price inversion points.

Therefore, it works best in range markets where extreme value readings of indicators such as Bollinger Bands produce more reliable results. In trending markets where it is more difficult to predict maximum or minimum extreme values, their signals have less reliability.

Since this system uses two well-known and commonly used indicators found in any technical analysis package, it can be used in any trading platform.

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Keltner Channel Indicator for Metatrader

Indicator Parameters MA_Period (normal value = 10): It is the moving average period corresponding to the midline. Mode_MA (normal value = MODE_SMA): This mode is the moving average corresponding to the midline. Price_Type (normal value = PRICE_TYPICAL): The type of price used in calculating the moving average corresponding to the midline.     The custom indicator Keltner Channel for Metatrader … Read more

Keltner channels – How can we use them?

Keltner channels are a technical indicator consisting of three lines: a central line that corresponds to an exponential moving average, and two lines, upper and lower, calculated as a deviation from the central line based on the ATR (Average True Range). If you know the Bollinger Bands you will see that both are similar indicators, with the difference that the bollinger bands use a simple moving average (SMA) as the center line and the bands are calculated as standard deviation of this SMA. In addition, the introduction of the ATR for the bands calculation in Keltner channels gives it the feature of being an indicator based on volatility, as well as being a softer indicator than Bollinger Bands.

Keltner channels, based on an exponential moving average, are a trend indicator, a trend dictated by the inclination of the channel. The most prominent use of Keltner channels as a trend indicator is the identification of trend changes when channel breakouts occur as well as the identification of range phases in the market (flat trend). The areas determined by the upper and lower lines can be used to identify overbought and oversold areas.

The development of Keltner channels is attributed to Chester Keltner who introduced in his book How to Make Money in Commodities (1960) the “Ten-Day Moving Average” rule, considered as the original version of Keltner channels. This original version used SMA instead of EMA. The current version of this indicator is attributed to Linda Bradford back in the 80s of the 20th century who introduced the ATR in the calculation of the channel bands.

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