Keltner Channel Indicator

Keltner Channels are among the most widely used channel-type indicators available today. They were first described in Chester Keltner's book How to Make Money in the Stock Market. The indicator was later refined by Linda Raschke, who updated and adapted it for active market traders. Raschke modernised the channel, published a new version, and introduced the use of Wilder's Average True Range. This version of the channel remains in use to this day.

Keltner Channels are trend indicators displayed as three lines on a chart. They help identify both trending and ranging market conditions and generate reliable signals for trading binary options. In appearance and behaviour, the indicator is similar to Bollinger Bands and other channel-type indicators. The central line is typically calculated over a period of 20, or less commonly 10.

Instructions for installing indicators in MetaTrader 4:

How to Trade Using the Keltner Channel Indicator

Trading in Ranging Markets

Trading with Keltner Channels in a ranging market is straightforward. When the price approaches or touches the upper boundary of the channel, this signals an opportunity to buy a call option. When the price approaches or crosses the lower boundary, it signals a put option entry. One important nuance: a valid signal also occurs when a candle is not fully outside the channel boundary but merely crosses it — the size of the candle in this case is irrelevant. Recognising this helps avoid entering unprofitable trades.

Trading in Trending Markets

The Keltner Channel indicator is most often used in combination with the ADX indicator, as ADX confirms trend strength.

Buy signal (call):

• The +DI line must be above the −DI line;
• The price must cross the central Keltner line from below;
• ADX must be at or above 30.

Sell signal (put):

• The −DI line must be above the +DI line;
• The price must cross the central Keltner line from above;
• ADX must be at or above 30.

Summary

While many channel indicators share a similar appearance, they each use different calculation methods. The Keltner Channel offers several notable strengths:

• Simple and intuitive interpretation;
• High sensitivity to price changes;
• Fewer false signals compared to other channel indicators.

When trading with Keltner Channels, it is recommended to filter binary options signals using higher timeframes, which helps reduce the number of unprofitable trades.

Download the Keltner Channel Indicator

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See Also:

• How to make money on binary options
• Pros and cons of trading binary options
• How to make a profit by trading on clean charts
• How to adapt a Forex strategy to Binary Options?