Introduction to the Keltner ATR Bands Indicator
Mean reversal trades are based on the concept that price would soon reverse if it has become oversold or overbought. The Keltner ATR Bands Indicator was developed to help traders objectively identify possible mean reversals coming from overbought and oversold markets.
What is the Keltner ATR Bands Indicator?
The Keltner ATR Bands Indicator is a band type of indicator which is based on the Keltner Channel. It is a modified version of the Keltner Channel which is preset to plot wider bands that tend to envelope price action more often.
This indicator plots two lines, one representing the upper band of the channel, and the other representing the lower band of the channel. These two lines typically envelope price action in a normal ranging market. However, price action may also consistently stay outside of the channel whenever the market is moving with a strong momentum or trend.
Given the characteristics of this type of this indicator, it is best used as a mean reversal indicator. In this case traders can trade mean reversal trades whenever price action shows signs of price rejection pushing against the upper or lower bands of the channel.
How the Keltner ATR Bands Indicator Works?
The Keltner ATR Bands Indicator has an algorithm which is very similar to the basic Keltner Channel Indicator. It begins by calculating for a moving average line, which is the midpoint of its channel. This would then be the basis for the upper and lower bands of its channel. It would then calculate for the Average True Range (ATR) and multiply the ATR with a preset multiplier. The resulting value would then be added and subtracted with the moving average. The resulting values would serve as a point on the upper and lower bands.
This indicator is preset to calculate for a 50 period moving average and uses a multiplier of 3.75. This creates a wider channel with smoother moving outer bands.
How to use the Keltner ATR Bands Indicator for MT4
The Keltner ATR Bands Indicator has several indicator inputs which can be modified within its settings.
“MAPeriod” allows users to modify the number of periods the indicator would use to calculate for its underlying moving average line.
“ATRMult” allows users to modify the ATR multiplier which the indicator uses to calculate for the upper and lower bands.
Buy Trade Setup
When to Enter?
Observe price action as it touches the lower bands of the Keltner ATR Bands and open a buy order if price shows signs of a bullish price rejection.
When to Exit?
Close the trade as soon as price touches the upper bands of the Keltner ATR Bands.
Sell Trade Setup
When to Enter?
Observe price action as it touches the upper bands of the Keltner ATR Bands and open a sell order if price shows signs of a bearish price rejection.
When to Exit?
Close the trade as soon as price touches the lower bands of the Keltner ATR Bands.
Conclusion
Given the characteristics that the setting of this indicator produces, this indicator is best used for mean reversal trades based on price rejection. However, its setting can still be modified which would allow traders to use it for other purposes other than mean reversals.
Recommended MT4/MT5 Broker
XM Broker
- Free $50 To Start Trading Instantly! (Withdraw-able Profit)
- Deposit Bonus up to $5,000
- Unlimited Loyalty Program
- Award Winning Forex Broker
- Additional Exclusive Bonuses Throughout The Year
- Exclusive 50% Cash Rebates for all Trades!
Already an XM client but missing out on cashback? Open New Real Account and Enter this Partner Code: 𝟕𝐖𝟑𝐉𝐐
(Free MT4 Indicators Download)
Enter Your Email Address below, download link will be sent to you.