TECHNICAL ANALYSIS
confirmed by the failure at the mid-point of the channel at point B. This gave a cautious sell signal. This selling pressure accelerated on a close below the bottom band at C with the market steadily declining. Point D provided a buy signal with a session close back inside the channel but this proved limited as did a buy signal at E. It must be remembered that this style of trading was never take place in isolation. Confirmation in the form of other
indicators
is always sought and in this case buy signals must be taken with significant caution as the descent of the channel clearly shows that the underlying trend if negative. Closing once again below the bottom of the channel increasing bearish
momentum and once
again this results in further losses – point F. This time there is a more significant rejection of the lows (in fact this
turns out to the absolute base in the time period covered) and the strong close back within the bands is another intraday buy signal – G. This happens one more time with a Sell signal H swiftly followed by a Buy at I. This buying at similar price levels and with closes inside the line is added evidence that a significant
low is in place. The
market duly rose to the top of a Keltner channel that was then beginning to rise.
• Figure 3 shows a Weekly Dow Jones chart
To show that using the Keltner channels as a trading tool is not confined to intraday we now look at a Weekly Dow Jones chart. Point A closed outside the bands and generated a buy signal. Prices traded to higher levels for the next four weeks. A close back inside the channels, B, signalled a sell signal which was proved correct over the next 3
FX
weeks until… Point C showed a firm rejection of the mid-point of a rising channel and this buy signal saw the market rise steadily over the following 11 weeks with an additional buy signal generated at D, a close above the upper end of the Keltner line. E then saw a close within the bands signalling a negative bias that led to the Dow trading all the way lower, in 2 weeks, to the bottom of the bands. Here a rejection of this key level (F) gave another Buy signal that lead to gains over the subsequent 6 weeks, including an unmarked rejection of the midpoint of the channel once again. Point G does show a false acceleration to buying
pressure
but that is followed the next week with a close beneath the upper band of the channels – a Sell signal that 5 down weeks.
CONCLUSIONS Keltner Channels are, like some many technical indicators, trend following but with the added facility to suggest acceleration in either direction and also, when used more creatively, as failure points. While it is beyond the scope of this short article, it is also essential that Keltner Channel signals for trading are used in conjunction with other technical indicators such as Candle Patterns or Stochastics rather than employed in isolation.
Figure 3 Alan Collins FX TRADER MAGAZINE October - December 2011 39
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86