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How to Master the Keltner Channel Indicator with MT4

Reading time: 9 minutes

This article will provide traders with a detailed explanation of what Keltner channels are, how to trade with Keltner channels, a guide for how to download the Keltner Channel Indicator in MetaTrader 4, how to edit settings in the Admiral Keltner indicator, a scalping trading strategy that can be used with the Admiral Keltner Indicator, and much more!

Admiral Keltner Indicator

You'll find that a lot of popular trading strategies revolve around dynamic channel indicators. Dynamic bands – also known as channels or envelopes – are a great example of such dynamic trading indicators. The core idea is simple. Even better, it's effective. Before we delve deeper into the subject, let us explain the basic premise behind Keltner Channels.

What is the Keltner Channel?

The Keltner Channel indicator, named by Chester W. Keltner, is a volatility based envelope that measures price movements in relation to lower and upper moving average bands. Chester Keltner was a commodity trader, who first outlined the theory in the 1960s. A volatility channel, or envelope, places the bands in such a way that it also serves as a measure of a Forex currency pair or stock volatility. Keltner Channels are a combination of a Exponential Moving Average and the Average True Range indicator.

The theory behind the Keltner Channel in a nutshell is that:

  • We need to plot the bands a certain distance away from the average of the market price
  • The bands are far enough away from each other that they represent a significant market move
  • If the market moves through those bands, there is an above-average chance that we may see prices continue to trend in that direction

Variations tend to revolve around the specifics of where you place the bands. The basic calculation is:

  • Middle Line: 20-day Exponential Moving Average
  • Upper Channel Line: 20-day EMA + (2 x ATR(10))
  • Lower Channel Line: 20-day EMA - (2 x ATR(10)

Keltner Channels are less known than Bollinger Bands®, but they were conceived much earlier. In fact, Keltner Channels work just as effectively as any other volatility channel.

Trading with Forex Keltner Channels

We can very broadly divide traders into two camps: trend followers and counter-trenders. Basically, both parties want to know if the market is stuck in a range or if it is trending. Usually, the price will either break out and form a new trend, or it will fail to break out and bounce back from where it came.

This means that you can use the Keltner Channel indicator to easily see levels offering good trading opportunities. For that reason, the indicator shows three channel lines – the upper, the lower, and the central. The upper and lower lines help us eyeball potential breakouts, while the centreline serves as a median point.

Downloading the Keltner Channel Indicator with MetaTrader 4

MetaTrader 4 (MT4) comes with a comprehensive selection of built-in indicators, but this is just the tip of an iceberg. There a huge number of custom indicators that you can potentially use, which are developed by users within the vast MT4 community. The Admiral Keltner indicator is an improved version over the existing, standard Keltner indicator. You can download it easily as it is a part of the award-winning MT4 Supreme Edition plugin. Once you download the indicator, the GIF below demonstrates how you place it on any chart you want:

GBPUSD Hourly Chart

Source: MetaTrader 4 - GBP/USD Hourly Chart - Data Range: 5 Jun, 2017 - 10 Aug, 2017

The Keltner Channel download will appear in your indicator list the next time you restart MetaTrader 4.

Admiral Keltner Settings

Admiral Keltner Settings

Source: MetaTrader 4 - Admiral Keltner Indicator

The screenshot above shows the default Keltner Channel settings. The moving average type is a EMA, and the rest of the available settings here are what makes the Admiral Keltner differ from other Keltner Channels indicators available in the market. For most of the volatility band strategies, you should be using the formulation that features the Average True Range indicator (ATR); also, the centreline is the 20-period EMA, which quite a few Keltner indicators fail to show.

The EMA period can be set to anything you need. For day trading, usually a 15 to 40 EMA is typical. The multiplier can be adjusted based on the market you are trading. While 2.0 is a common setting, you may find that a 1.6 or a 2.4 provides you with better information for the exact market you trade. Bear in mind that the higher the multiplier, the wider the channel, and vice versa. The smaller the multiplier, the narrower the channel.

EMA period on Keltner channel

Source: MetaTrader 4 - GBP/USD Hourly Chart - Data Range: 5 Jun, 2017 - 10 Aug, 2017

Basic Trading with Admiral Keltner Channels

Breakout strategies use volatility channels in a very simple manner. This tends to play out with: buy breakouts being above the upper volatility channel, while sell breakouts are below the lower volatility channel. The middle band is used as the stop-loss. Profit targets are defined by the Admiral Pivot, which should be set to a H1 or a D1 time frame. In addition, breakouts are usually traded on a M15 timeframe.

Custom Indicator - Admiral Pivot

Source: MetaTrader 4 - Admiral Keltner Indicator

The chart below displays possible entries based on a candle close above or below the Admiral Keltner indicator. Due to potential false breakouts, the best option is to use breakouts with additional filters, such as the Stochastic, the MACD, the CCI, or the RSI.

GBP/USD M15 Chart, Aug 9-14, 2017, Admiral Markets Platform, Admiral Pivot (D1)

Source: MetaTrader 4 - GBP/USD M15 Chart - Data Range: 9 Aug, 2017 - 14 Aug, 2017 - Admiral Pivot (D1)

Scalping Trading Strategy with the Admiral Keltner Indicator

Let's now have a look at a advanced Forex scalping strategy that should be traded on 1-minute timeframes. The strategy is suitable for extreme scalpers, and for professional traders who enjoy the excitement of day trading volatility on extremely short-time frames. Here are all the details you need:

Time Frame: M1

Indicators:Admiral Keltner (22,10,1.0)

  1. Admiral Pivot (M15)
  2. EMA 445 set on close (Red)
  3. EMA 89 set on close (Green)
  4. MACD (5,34,5) and MACD (25,170,25)

Pairs to trade:

  1. EUR/USD
  2. GBP/USD
  3. USD/CHF
  4. AUD/USD
  5. EUR/JPY
  6. GBP/JPY

GBP/USD M1 Chart, Aug 14, 2017, Admiral Markets Platform, Admiral Pivot (H1)

Source: MetaTrader 4 - GBP/USD M1 Chart - Data Range: 14 Aug, 2017 11:40AM - 13:56PM - Admiral Pivot (H1)

Buy trade:

  1. Green EMA above the Red EMA
  2. Both MACDs above the 0 line (histograms are pointed up)
  3. The candle needs to touch or come very close to either the Green or the Red EMA, and then bounce
  4. The price needs to close above the Keltner Channel

EUR/JPY M1 Chart, Aug 14, 2017, Admiral Markets Platform

Source: MetaTrader 4 - EUR/JPY M1 Chart - Data Range: 14 Aug, 2017 02:26AM - 05:22AM

Sell trade:

  1. Green EMA below the Red EMA
  2. Both MACDs below the 0 line (histograms are pointed down)
  3. The candle needs to touch or come very close to either the Green or the Red EMA, and then bounce
  4. The price needs to close below the Keltner Channel

AUD/USD M1 Chart, Aug 14, 2017, Admiral Markets Platform

Source: MetaTrader 4 - AUD/USD M1 Chart - Data Range: Aug 14, 2017 08:02AM - 10:58AM

Stop-Loss and Targets: The stop-loss is placed 15 pips + the spread. The target is between 5-15 pips, and the Admiral Pivot should be set to M15.

GBP/JPY M1 Chart, Aug 14, 2017, Admiral Markets Platform

Source: MetaTrader 4 - GBP/JPY M1 Chart - Data Range: Aug 14, 2017 11:59AM - 14:15PM

Tips for Using Keltner Channels

  • Use a backup or confirming indicator in order to avoid false signals
  • Use one leading indicator and one lagging indicator
  • They should agree with each other no matter what
  • Don't use Keltner Channels with another volatility breakout indicator, except for with Bollinger Bands ®
  • The Bollinger Bands ® with Admiral Keltner Breakout Strategy is another good strategy to consider
  • Start by experimenting with the combination that works best for you on a Demo Trading Account for this purpose

Other Volatility Based Indicators

Other similar indicators to Keltner Channels include:

  • The Average True Range (ATR Indicator) is another excellent tool for price range projections
  • The Bollinger Band ® is one of the better-known volatility channel methods
  • The Donchian Channel indicator is worth considering as well

If you would like to learn more about Forex indicators that you can use in your trading, make sure to check out our article on the Most Important Forex Indicators All Forex Traders Should Know, and go ahead and test them risk-free with a demo trading account!

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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