Keltner channels

Bollinger Bands​ and Keltner channels are forms of advanced technical analysis that aim to identify potential trading opportunities in both bullish and bearish markets. Bollinger Bands is a very similar technical analysis tool that helps to show market trends and whether the typical price of an instrument is high or low on a relative basis.

The main difference between Keltner channels and Bollinger Bands is the band settings. Bollinger Bands also display three lines on price charts, the middle line representing a moving average. However, whereas Keltner channels use the ATR indicator to set the upper and lower bands, Bollinger Bands use standard deviation instead. As the calculations are slightly different, this means that trading signals may also differ between indicators.

Forex traders are able to take advantage of small price movements through short-term strategies, such as a day trading strategy. Let’s take an example of using a Keltner channel trading strategy for day trading.

This trading strategy involves opening a position to trade on the price movements of currency pairs, with the aim of closing the position before the end of the financial day in order to profit from volatility between the currencies. Keltner channels frame prices within trading charts; this is their main purpose. Therefore, instead of guessing which direction the market will go in with other forex indicators that show only strength and weakness, Keltner channels highlight the exact lines of support and resistance that the market will follow, reach and possibly surpass.

This is particularly useful for short-term day traders, as they need to stay focused and respond quickly to changes within the market. Keeping on top of price charts with Keltner channels means that day traders may be able build a more efficient entry and exit strategy for their open positions. This also applies when scalping within the forex market using Keltner channels.

Scalping​​ is similar to a day trading strategy, although the positions are held for a much shorter amount of time, some only lasting for seconds or minutes. Therefore, some traders choose to plan an even quicker entry and exit strategy when trading on currency pairs. Scalping​ with Keltner channels allows traders to identify potential breakouts and pullbacks within the charts, as well as spotting trend reversals if the market is in a particularly volatile state. This prompts traders to exit positions if they can see that the markets are moving in an unfavourable direction (surpassing the lower channel bands) and can help to minimise their chances of loss.

Although Keltner channel scalping strategies prove very effective, scalping in general is a strategy for traders with a high level of experience and can bring many risks. It is therefore important to manage your risk properly, using execution tools such as stop-loss orders in order to minimise the loss of capital. Read our guide on how to scalp forex​.

We also offer access to the international MetaTrader 4 platform for traders of all experience levels. With the help of Expert Advisors (EA), traders can add bands to measure the volatility of their financial instrument, customise Keltner channel parameters and Keltner channel alerts on MT4. This will help you to identify opportunistic price oscillations, entry or exit points. Read more about our MT4 indicators and add-ons that are available to download for your account. Get started by opening an MT4 account here.