Keltner Channel Arrows Forex Trading Strategy

For the most part, the forex market is chaotic and unpredictable, especially on the shorter timeframes. Different market participants exchange currencies for various reasons. Some may be exchanging the currency for a dollar for business purposes and are looking for the best price possible. Others need to complete the exchange as soon as possible to cover for expenses and would take any price available. Traders like us are in it to make money out of these price fluctuations. Different reasons for exchanging a currency push and pull price in different directions. At times, this would result in an unpredictable price movement.

However, there are times when price would trend. It is in these conditions where the market could have a clarity in direction. Trend following traders exploit these types of market conditions as it allows them to take trades with a high degree of confidence that their trade has a good chance of resulting in a profit.

One of the best ways to trade the forex market is by aligning trades with a long-term trend and entering trades as the market retraces to a reasonable price level.

Keltner Channel Arrows Forex Trading Strategy is a trend following strategy that is based on the long-term trend. It makes use of the Keltner Channel to asses if price has retraced and if price is resuming its trend. It also makes use of specific entry signals that allow us to enter the market at specific points that have a high probability of resulting in a win.

Keltner Channel

Keltner Channel is a momentum indicator that indicates trend direction and momentum.

The Keltner Channel is composed of three lines. The mid line is an Exponential Moving Average (EMA) of price. This line is flanked by two outer lines plotted above and below it. The distance of the outer lines from the mid line is based on the Average True Range (ATR). The two lines are displaced by the ATR multiplied by two.

Most of the price action will be enclosed within the channel. Conditions wherein price would breach strongly beyond the channel indicates a probable momentum shift. On the other hand, price action that is characterized by price rejection of the outer lines could indicate a mean reversal. Price crossing over the midline could also be an early indication of a trend reversal.

Arrows and Curves

Arrows and Curves indicator is a trend following indicator which helps detect trend reversals based on momentum shifts.

This indicator is composed of two lines. These two lines would usually envelope price action between it. However, during a strong momentum shift, price would typically close beyond the lines. This could be an indication of a possible trend reversal based on momentum.

This indicator also conveniently indicates the possible trend or momentum reversal by plotting arrows on the candle that closed beyond the two lines.

Trading Strategy

To trade this strategy, we must first identify the long-term trend using the 200 Simple Moving Average (SMA).

The trend will be based primarily on the location of price in relation to the moving average line. The slope of the line would also be considered when assessing the direction and strength of the trend. Trades would only be considered when it is trading in the direction of the trend. Price action should also show a trending market condition that agrees with the trend indicated by the moving average line.

Then, we will be waiting for price to retrace. This would be indicated by price crossing above the midline of the Keltner Channel.

The Arrows and Curves indicator should also indicate a reversal by plotting an arrow opposing the trend. If the market is indeed trending, then this reversal will be temporary.

As soon as the retracement ends, price would cross over the midline of the Keltner Channel. This should be accompanied by an arrow being plotted by the Arrows and Curves indicator showing a momentum reversal on the short-term.

Indicators:

• 200 SMA (gold)
• Keltner_Chanel (default setting)
• Lukas1_Arrows_Curves (default setting)

Preferred Time Frames: 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

• Price should be above the 200 SMA line.
• The 200 SMA line should be sloping up.
• Price should retrace towards the 200 SMA line causing price to cross below the mid line of the Keltner Channel.
• As soon as the retracement ends, price should cross above the midline of the Keltner Channel accompanied by an arrow pointing up coming from the Arrows and Curves indicator.
• Enter a buy order on the confirmation of the conditions above.

Stop Loss

• Set the stop loss on the fractal below the entry candle.

Exit

• Close the trade as soon as an opposing candle is printed by the Arrows and Curves indicator.

Sell Trade Setup

Entry

• Price should be below the 200 SMA line.
• The 200 SMA line should be sloping down.
• Price should retrace towards the 200 SMA line causing price to cross above the mid line of the Keltner Channel.
• As soon as the retracement ends, price should cross below the midline of the Keltner Channel accompanied by an arrow pointing down coming from the Arrows and Curves indicator.
• Enter a sell order on the confirmation of the conditions above.

Stop Loss

• Set the stop loss on the fractal above the entry candle.

Exit

• Close the trade as soon as an opposing candle is printed by the Arrows and Curves indicator.

Conclusion

This trading strategy is an excellent trend following strategy that trades on retracements.

To understand trend direction visually, it would also be beneficial to observe the higher time frame in order to understand the trend direction in a different perspective. If the market is indeed trending, then many of the trade signals generated should result in a winning trade. Not all trades would turn into a profit, but most trades would.

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