There are trading strategies out there that would result in you holding a trade for so long and for so many candles at a time. These types of trades are great, they allow you to maximize profits on every trade. However, there are also strategies that can get you on and off quickly enough and make some cash. These are the types of trades that aren't as stressful because you don't have to wait and fidget as long as you wait for 10, 15, or even 20 candles before closing the trade.
The Keltner Reversal Forex Trading Strategy is one of those strategies that allows you to get in and out of trading with an average of 5 candles, sometimes even less. This strategy enables quick profitable trades in a short amount of time relative to the time frame used to trade short term reversals under an overstretched market condition.
The Keltner Canal
The Keltner Channel is a volatility based indicator that indicates overstretching on the chart itself based on a moving average. It looks and works much the same as the well-known Bollinger Bands. It has a center line that is based on a moving average and a couple of lines that wrap the center line, one above and one below.
However, the difference lies in some features. First, the Keltner channel is based on the exponential moving average. This allows for a slightly smoother average compared to the Bollinger Bands. Then the outer ligaments. While the Bollinger Bands are based on a calculation of the standard deviation, the outer bands of the Keltner Channel are based on the Average True Range (ATR). This function seems very logical. Average true reach is derived from the average reach of a period or the average size of a candle. If the price deviates far enough from the mean, which in this case is the exponential moving average, causing it to be more than 1 times the ATR or more from the mean, this could be a possible reversal. Think of the outer bands as a rubber band. When the price pushes towards the outer bands, those bands tend to push the price back towards the mean. The more the price pushes towards the outer bands, the stronger the reaction and often results in price pushing the other side of the band.
The stochastic oscillator is a popular oscillating indicator that is based on momentum. It's a finite oscillator, which means that it moves within a fixed range. In this case, stochastic oscillators move from zero to 100 with 50 as the center line. It draws lines that interweave and cross. When the faster line crosses the slower line upwards, this is a buy signal. When the faster line crosses the slower line down, this is a sell signal. Since the stochastic oscillator is a finite oscillator, traders can mark an area that we might consider oversold or overbought, which is usually around 20 and 80. Signals occurring beyond these lines are considered highly likely due to the tendency of the price to revert to the mean if the price is oversold or overbought.
Trading strategy concept
Because of the nature of the two indicators that give clues as to when the market is oversold or overbought, these two indicators could be viewed as complementary. This strategy is based on the concept of making trades when signals are generated by the two indicators when the market is oversold or overbought.
This strategy first filters out trades based on the general trend direction. This strategy uses the 50 Period Exponential Moving Average (EMA) as the basis for the trend. The trend is judged by the price location in relation to the 50 EMA. The market is considered bullish when the price is above 50 EMA and bearish when the price is below.
Then we wait for a confluence of oversold or overbought conditions on the two indicators. If the trend is bullish, we would wait for a short term price reversal that would result in an overselling of the price based on the Keltner channel. This would be when the price closes below the lower outer band. Then we wait for the price to close again within the Keltner Channel, which indicates that the price may be reacting to the oversold condition and causing a possible reversal.
Since the above situation occurs on the Keltner channel, the stochastic oscillator should also have an oversold market condition with both lines below 20. Then we wait for the faster line to cross the slower line, which signals a buy trade setup. We then take the trade at the confluence of these conditions.
When building a sale on a bearish market, you should flip the conditions for the confluence of an overbought condition into a bearish trend.
- 50 EMA (gold)
- Employee period: 10
- ATR period: 10
- Kshift: 1
- Stochastic oscillator
- % K period: 15
- % D period: 3rd
- Slowdown: 2
Time window: any
Currency pair: any
Trading session: Session in London and New York for 30 minutes and less; every trading session for periods longer than 1 hour
Buy (Long) Trade Setup
- The price should be above 50 EMA
- The price should close below the lower outer band of the Keltner Channel
- The two lines of the stochastic oscillator should be below 20
- Enter a buy order as soon as the price closes again within the Keltner channel and the faster line of the stochastic oscillator crosses the slower line
- Set the stop loss a few pips below the low of the candle
- Once the price closes above the upper outer band, close the trade
Sell (Short) Trade Setup
- The price should be below 50 EMA
- The price should close above the upper outer band of the Keltner Canal
- The two lines of the stochastic oscillator should be above 80
- Enter a sell order as soon as the price within the Keltner channel closes again and the faster line of the stochastic oscillator falls below the slower line
- Set the stop loss a few pips above the high of the candle
- Once the price closes below the lower outer band, close the trade
In this strategy, trades that match the trend and medium reverse trades meet. Purely nasty reverse entries based on the Keltner channel or the stochastic oscillator could work without considering the trend, but it wouldn't be as likely as if these indicators were trading in the direction of the trend. This is because, in a trending environment, price tends to resume its previous trend once it is close enough to the mean.
If the Keltner Channel and Stochastic Oscillator flow together while making trades that coincide with the direction of the 50 EMA, it would often result in a high probability trade.
Forex Trading Strategy Installation Instructions
The Keltner Reversal Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator (s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
The Keltner Reversal Forex Trading Strategy provides the ability to spot various peculiarities and patterns in price dynamics that are invisible to the naked eye.
Based on this information, traders can assume further price movements and adjust this strategy accordingly.
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How do I install the Keltner Reversal Forex Trading Strategy?
- Download Keltner Reversal Forex Trading Strategy.zip
- * Copy mq4 and ex4 files to your Metatrader directory / experts / indicators /
- Copy the tpl file (template) into your Metatrader directory / templates /
- Start or restart your Metatrader client
- Select the chart and timeframe in which you want to test your forex strategy
- Right click on your trading chart and hover over “Template”.
- Move right to select the Keltner Reversal Forex Trading Strategy
- You will see that the Keltner Reversal Forex Trading Strategy is available on your chart
* Note: Not all forex strategies come with mq4 / ex4 files. Some templates are already built into the MT4 indicators of the MetaTrader platform.
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