Welcome to the LiteForex traders blog where we analyze simple but effective strategies based on unique indicators. Today we will analyze the range trading strategy, in which we use the Keltner channel stops indicator. We will find out what this indicator is for and what the entry and exit conditions are. I will also talk about its peculiarities and give examples.
The article covers the following subjects:
Forex range strategy for the non-standard Keltner channel stops indicator
Keltner channel stops is not quite a standard indicator. Although it is considered a channel indicator, it does not draw price channels in the chart. Interestingly, it is based on two classical instruments – Bollinger Bands and the Keltner channel indicator. The combination of the two gives a very good result on the foreign exchange market. Unlike conventional price channel tools, it does not draw the visible upper and lower boundaries of the price channel, but rather works like arrow indicators – it draws the visual direction of the trend after the price reverses to its average value.
Keltner channel stops is a modification of BBStop that uses the Keltner channel calculation formula. BBStop is a modification of the Bollinger Bands, which is designed to identify stop levels at the trading range boundaries.
Instead of the traditional channel range, the Keltner channel stops paints lines above or below the price. Green means a growing trend, orange (red) means a downtrend. The color changes when the price touches the lower or upper boundaries of the channel. You can’t see them in the chart, but they are built by the indicator based on the algorithm in the code.
This screenshot shows how accurately the Keltner channel stops shows a strong price movement. Despite a moderate flat in the area highlighted by a blue rectangle, one could earn on each of these movements. Channel strategies do give false signals sometimes and there is no way to filter them yet. Such signals are indicated by yellow arrows.
The strategy built directly on the Keltner Channel indicator is described in detail in this review. Please note that it was reviewed on the basis of the LiteForex platform integrated in the Client’s Cabinet. If you are used to MT4, open an account in your Cabinet, download the platform and use the Keltner Channel indicator template for MT4, which can be downloaded here. The Keltner channel stops indicator can be downloaded here.
How to install the Keltner channel stops indicator in MT4:
- Open the platform and select “File / Open Data Folder” in the top menu.
- In the window that opens, go to the “MQL4 / Indicators” folder. Copy the indicator template there with the extension .mql4.
- Restart the trading platform. The indicator will appear in the “Insert / Indicators / Custom” menu.
1. Trading conditions and peculiarities of using Keltner channel stops
The indicator works well on any liquid currency pair. Timeframe – H4. If you set a lower interval, a lot of small areas with false signals will appear. See a similar example in the screenshot below.
Keltner channel stops indicator settings:
Conditions for opening a long position:
We open a position on the next candle. Stop loss is set at a relatively long distance – 30 points. The moment of signal change can be compared with the price reaching the channel border and the subsequent reversal. But inertial movement can give a long shadow in the old direction and trigger stop orders.
We exit the market as follows. The target profit is 20 points (we are talking about 4-digit quotes!). Upon reaching it, we move the stop loss to the breakeven level and…