Contents
There are many technical analysis tools available on the IQ Option platform. They serve different purposes and can be used in different ways. Today I will present one that is called the Keltner Channel.
Key Takeaways🔑
| →The Keltner Channel is a versatile technical analysis tool used to identify trends, price breakouts, and overbought/oversold zones. |
| →It consists of two bands and the Exponential Moving Average (EMA) between them, which can be customized to fit your trading strategy. |
| →Practice using the Keltner Channel on a demo account before implementing it in live trading to gain experience and confidence. |
What is the Keltner Channel?
The Keltner Channel is an indicator that consists of two bands and the Exponential Moving Average between them. It is possible to identify the trend with it, catch the potential price breakouts and recognise the oversold and overbought zones.
Keltner Channel formula
The Keltner Channel’s calculations can be conducted in various ways, but we may assume that the middle line is a moving average of the typical price with a period of 10 or 20 [(High + Low + Close) / 3]. During the same period of time, the average true range (ATR) is measured and multiplied by a multiple (most often 1.5). The result is added to the middle line and the upper band is formed. When the result is subtracted from the middle line, we receive the lower band.
How to add the Keltner Channel to the chart on IQ Option
Log in to your IQ Option account, choose the asset and set the chart. Then click on the indicator icon and choose Volatility under the Indicators tab. The Keltner Channels will be among the indicators on the list.
You can also simply start writing its name in the search window on the right side of the window.
Once you have selected the indicator you can adjust its settings. Choose the period and offset (that is the name for ATR multiplier on IQ Option platform). The moving average type should be set for EMA.
What are the best Keltner Channel settings to use when scalping?
The best indicator settings are the default ones. Many people ask us about specific indicator settings for scalping strategies. As a rule, scalping is about the speed of reaction and having early signals. Therefore in the case of this indicator, you may be tempted to reduce the period from 20 to 10-15. However, I would leave the Offset parameter unchanged here because reducing it could make the channel too narrow to use to generate any signals.
How do you use Keltner Channel strategy?
There are many methods of using the Keltner Channel. Let’s discuss the price breakouts and the oversold and overbought areas.
Using the Keltner Channel in trading with the price breakouts
The uptrend is expected when the price closes over the upper band. This is a signal to open a buy position.
When the price closes below the lower border, there is most probably a downtrend developing and you should, therefore, enter a sell transaction.
Using the Keltner Channel in trading with the oversold and overbought areas
Using this indicator in trading with the oversold and overbought areas works perfectly in the ranging markets.
A signal to enter an up trade occurs when the price breaks the lower band of the channel and then closes again within it. Waiting for the price to close inside the channel helps to avoid becoming trapped with trend continuation after a breakout.
Analogically, when the price breaks out beyond the upper band, a trader can wait for it to close within the channel again. This closing within a channel means that the market changed its direction.
Pros and Cons of Using the Keltner Channel👍👎
Pros:
- 📈 Versatile indicator for identifying trends, breakouts, and overbought/oversold zones.
- 🔧 Customizable settings to fit individual trading strategies and timeframes.
- 🤝 Can be combined with other technical analysis tools for increased accuracy.
Cons:
- ⏱️ Requires practice to master and effectively use in trading.
- 🚫 May generate false signals in highly volatile markets or when used with inappropriate settings.
- 📊 Can be overwhelming for beginners due to its multiple components.
| Keltner Channel Components | Purpose |
|---|---|
| Middle Line (Exponential Moving Average) | Identifies the underlying trend |
| Upper Band | Signals potential price breakouts or overbought conditions |
| Lower Band | Signals potential price breakouts or oversold conditions |
Summary
The Keltner Channel indicator may be used in various ways. Moreover, it can be combined with other tools.
It is best to practice in a free IQ Option demo account. You receive a demo currency to trade with so you do not risk losing your own money. This way you can learn to use a new indicator or a strategy. Once you get hold of it, you should switch to the live account. Every trader wants to make real money, after all.
Have you tried the Keltner Channel yet? Share your thoughts in the comments section below.
Good luck!
Short Q&A about the Keltner Channel📚
- Q: How can I customize the Keltner Channel settings for scalping?
- A: You can reduce the period from 20 to 10-15 for faster signals, but it’s recommended to leave the Offset parameter unchanged to avoid making the channel too narrow.
- Q: What is the purpose of the Exponential Moving Average (EMA) in the Keltner Channel?
- A: The EMA serves as the middle line, which helps identify the underlying trend of the asset price.
- Q: Can I use the Keltner Channel with other technical analysis tools?
- A: Yes, the Keltner Channel can be combined with other tools to improve the accuracy of your trading signals.
- Q: How do I recognize a potential price breakout using the Keltner Channel?
- A: A potential breakout is signaled when the price closes above the upper band (uptrend) or below the lower band (downtrend).
- Q: How can I avoid false signals when using the Keltner Channel?
- A: Wait for the price to close back within the channel after breaking out, which indicates a change in market direction and reduces the risk of false signals.