5-Day Keltner Channel

B

baillirw

Lately, I have been paper trading using the 5-Day Keltner Channel with the RSI (3/14) day and have had some success over the last few weeks. basically, I look at stocks that have spiked above or below their extreme bands on the Keltner Channel and have held a 3-Day RSI above 95 for two or three days. I then narrow down the list further by taking out stocks with poor 14-Day RSI (i.e. A stock with a 20 isn't good for shorting). Usually my trades have been lasting anywhere from 2-8 days.
Anyway, this is one of the first strategies I've created myself that I have had any success with in the simulator. What do you guys think of it.
 
when the kelnter diverges pay attention for whipsawor turn.........when it narrows it will be in a trend....buy low and sell high in the trend and whipsaw........
 
GlennJohnson -

They are similar in that they both provide trading channels, however, they are calculated differently. BBs are calculated from the standard deviation of prices, and KCs are calculated from the Average True Range of prices (courtesy of Welles Wilder).

In practice, BBs expand and contract much more than KCs. I like to use a penetration of the BB and turn back through it for trade entries, and exit on the KC on the opposite side (because often the other BB has spread way apart).

Also, another trick is to wait until both BBs compress within the KCs. This compression of volatility indicates a breakout will be coming (one direction or the other) which will have some legs.

Baillirw -

What program do you use to scan for stocks meeting your KC/RSI criteria?

Sandy
 
Quote from sandygray66:

BBs are calculated from the standard deviation of prices, and KCs are calculated from the Average True Range of prices (courtesy of Welles Wilder).


Sandy
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What is deviation? I got the same definition from the technical indicator dictionary. But they don't say what "deviation" means.
I never use that word when I speak to people.
 
Quote from goodfellow:

What is deviation? I got the same definition from the technical indicator dictionary. But they don't say what "deviation" means.
I never use that word when I speak to people.
More...

Standard deviation
From Wikipedia, the free encyclopedia

In probability and statistics, the standard deviation is the most common measure of statistical dispersion. Simply put, standard deviation measures how spread out the values in a data set are. More precisely, it is a measure of the average distance of the data values from their mean. If the data points are all close to the mean, then the standard deviation will be low (closer to zero). If many data points are very different from the mean, then the standard deviation is high (further from zero). If all the data values are equal, then the standard deviation will be zero. The standard deviation has no maximum value although it is limited for most data sets (see Chebyshev's inequality).

The standard deviation is defined as the square root of the variance. This means it is the root mean square (RMS) deviation from the average. The standard deviation is always a positive number (or zero) and is always measured in the same units as the original data. For example, if the data are distance measurements in meters, the standard deviation will also be measured in meters.

A distinction is made between the standard deviation ó (sigma) of a whole population or of a random variable, and the standard deviation s of a subset-population sample. The formulae are given below.

The term standard deviation was introduced to statistics by Karl Pearson (On the dissection of asymmetrical frequency curves, 1894).

http://en.wikipedia.org/wiki/Standard_deviation
 
Standard deviation (also known as sigma) is the most common statistical measure of variation in data sets. Assuming a normal distribution (i.e. like the bell curve), 1 sigma (1 standard deviation) will include 68% of the data points. 2 sigma will include 95% of data points.

If you set Bollinger Bands to standard deviation of 2, the BBs will be set to a width to include 95% of the distribution of prices in the previous X bars.

If you want to learn the math behind standard deviation (which I suggest if you're doing any kind of technical analysis on financial instruments), you can Google it.

If you want to learn more about deviants, you'll find a lot about that subject via Google as well.
 
Thank you. :-)

What do others set their bollinger bands at? Mine are set at 10 with a 1.5 deviation. This is for daytrading the ES. Looking for a few points before I get out. Maybe 2 minimum or more. I also put a 10 MA in the middle of the bollinger bands. S
 
I have the BBs set at 20 periods and 2 std. dev. So mine will be a bit broader than yours and a bit slower to change in width.

I have my KCs set at 10 periods with a 10 period EMA, and an ATR multiplier of 1.3.

There's no specific magic to those settings, just what I've gotten used to in measuring channels and breakouts on the ES.
 
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