Keltner Channel Indicator for Metatrader 5

January 17, 2015

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Keltner Channel Indicator for MetaTrader 5 is a powerful tool traders use to assess market volatility and potential price movements. Named after its creator, Chester Keltner, who introduced it in his 1960 book “How to Make Money in Commodities,” this indicator combines elements of moving averages and the Average True Range (ATR) to create volatility-based envelopes around an exponential moving average (EMA).

Basics Of Volatility-Based Indicators

Before we dive into the specifics of the Keltner Channel, let’s grasp the fundamental concept of volatility. Volatility measures the price fluctuations of an asset. When markets are volatile, prices swing rapidly, presenting both opportunities and risks. Volatility-based indicators help us navigate these price movements.

Who Was Chester Keltner?

Chester W. Keltner, a commodities trader, introduced the Keltner Channel in the 1960s. His groundbreaking work emphasized moving averages and volatility to create a dynamic trading tool. Keltner’s insights continue to influence traders worldwide.

The 10-Period Moving Average

At the heart of the Keltner Channel lies the 10-period exponential moving average (EMA). This moving average smooths out price data, providing a reference point for assessing trends.

Exponential Moving Average

The EMA calculates the average price over a specific period, giving more weight to recent data. In the Keltner Channel, the 10-period EMA serves as the central line.

Average True Range

The ATR measures volatility by considering the range between high and low prices. Keltner Channels uses the ATR to determine the width of the channels.

Identifying Overbought and Oversold Conditions

Overbought: Prices near the upper channel suggest potential reversals.
Oversold: Prices near the lower channel indicate possible buying opportunities.

How to Trade with Keltner Channel Indicator

Buy Entry

Wait for the price to break above the upper Keltner Channel line.
Confirm the breakout with other indicators (e.g., RSI, MACD).
Stop-Loss: Set the stop-loss just below the breakout candle.
Take-Profit: Target the next significant resistance level or a multiple of the ATR.

Sell Entry

Observe the price breaking below the lower Keltner Channel line.
Confirm with other indicators (e.g., RSI, MACD).
Stop-Loss: Set the stop-loss just above the breakdown candle.
Take-Profit: Target the next significant support level or a multiple of the ATR.

Keltner Channel Indicator Settings

Conclusion

Keltner Channel Indicator provides valuable insights into price volatility and trend dynamics. Use it alongside other tools, adapt to different timeframes, and always consider the broader market context. Remember that no single indicator guarantees success; the combination of knowledge, discipline, and risk management leads to profitable trading.