  ## Keltner Channel

One weakness of the strategy of price crosses its moving average, is the many whipsaw, closing the position at a loss before the trend has a chance to settle. This is why trading slope of the moving average gives better results; It takes position when the trend is sufficiently established.

The whipsaw is a component of market volatility. One way to avoid them is to create a band of volatility around the mean. We have already discussed this approach in the article about Bollinger Bands. Indeed, trading the breaks of Bollinger Bands reduces sensitivity to market noise.

Note: I often give links to pages online because I find relevant content. This does not mean that I endorse the contents of other pages. So be careful!

My goal today is to test a trend strategy based on Keltner channel. The rules can be presented as follows:

• Buy: when the price closes above the upper band, buy at the opening of the next bar. Close the position when the price closes below the moving average.
• Sale: when the price closes below the lower band, sell at the opening of the next bar. Close the position when the price closes above the moving average.
• The bands are at a distance of 2xATR from the moving average.

Average True Range (ATR)

All tests are done with an initial capital of \$ 10,000, on EURUSD, for the period from 01-01-2008 to 01-01-2012 and for different time frames (M15, H1, H4 and D1). Volume of trade = 1 mini lot (\$ 10K). For each time frame, I vary the period from 10 to 100 with a step of 2. I will present the results of optimization in the form of a curve to see if there is a region where the results are stable.

Optimization results of the period of the moving average Figure 1 : Profit / loss according to the time frames for a period of the moving average and ATR ranging between 10 and 100 of a step of 2

Figure 1 show clearly that H1 and D1 are the time frames that provide the best results. The following table presents the average profit / loss (Average), standard deviation (Std) and the ratio of Average / Std. H1 definitely gives the best results. Results with optimization of the period of the moving average and the ATR factor

H1 curve shows some stability above zero from the period 40. I wanted to see how this stability could be affected, for better or worse, if we vary the ATR multiplier. This factor was fixed at 2 in the previous test. In Figure 2, we clearly see a stable region around the point (74, 1.5). Figure 2 : Topographic map of the profit for the period ranging from 10 to 100 and the ATR factor ranging from 1 to 5.

Conclusion

The strategy based on the Keltner channel keeps its promises. Positive results on a wide range of time frames (from H1 to D1), with the best at H1. Some stability for the period as well as for the ATR multiplier factor. The presence of a volatile component (ATR) in this strategy gives us some confidence to his ability to hold if the market volatility changes.

If you like this website, please recommend it to your friends. If you want it to be better, please leave us a feedback.

© Guide FX