:: actio-et-reactio ::
amg's market charts and blather
Balance is but a brief transition between extremes.
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"I'm trying to learn about Keltner Channels - there are a few sites on the net but what I'm searching for is parameters I can use at Stock Charts that would 'substitute' or act as a Keltner Channel indicator."
Keltner bands use True Range (H minus L of each bar) and Average True Range (H-L average of # of bars) to calculate the bands. Like Bollinger Bands, a typical cycle length is 20 bars.
Also like BBands, volatility is what is being tested. Keltners use the TR and ATR as a measure of volatility whereas BBands calculate the statistical deviation of # bars from the average. Both methods use touches of the band to signal "something is afoot".
The thing to remember about ATR is that its direction doesn't directly match price direction. A rising ATR just means the bar H/L is widening (bigger volatility). A flat ATR means the HL hasn't much changed. So a flat ATR is followed by a rise, and following a large ATR move is a period of decreasing ATR. It is the CHANGE in this rate that is of interest and what Keltner strategies exploit.
One way using to simulate Keltners is to a 20-bar ATR as an indicator. Because Kelter bands use the change in ATR to draw the bands, you can use Trendlines on the ATR to indicate changes. I like to draw TLs across peaks/troughs as well as rising bottoms and falling tops. Where a horizontal line stops the movement and reverses, you drop a line down to the price. Where the ATR breaks a TL, you drop a line. Sounds like fishing.
I marked up a weekly COST chart to show what I mean. I added a BBand on the price and a couple of indicators, not that you need them, but one of them might provide another measure of confirmation.
I've marked the inflections (ATR breaks, reversals) with red dashed lines. You can see some are BBand touches or even MA touches, both useful to enter or exit positions. In addition to the clues from the BBand, you can also use CCI crosses of +/- 133 (or +/- 100 or even +/-200 when *really* OS/OB), Sto5 cross 20/80, or the MACD 3/10 cross, as further confirmation and/or entry/exit aides. Notice that the CCI on this chart is using 14, so the signals will look "early" relative to the ATR20. You can adjust one or the other or both and study a combo that works for you.
Not all of the ATR signals pan out as reversals, but even the ones that seem wishy-washy signals ended up as continuation signals. Like all methods, the more you use it, the more you'll see its particular nuances. I will be following this post with a comparable chart using Keltner Bands created with Ensign Software.
Labels: chart-analysis, indicators
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moon phases |
At last, over the rim
of the waiting earth
the moon lifted with
slow majesty
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows