Keltner Channels Explained: Better than Bollinger Bands? // channel indicator trading strategy vs settings strategies mt4 squeeze thinkorswim pdf david moadel
welcome to looking at the markets with David Modell today I'm going to give you
a quick introduction to Keltner channels and I'm going to compare them to
Bollinger Bands so here we go alright I'm on stock charts dot-com want to give
them credit and we're looking right now at the Lumber Liquidators stock daily
candlestick chart each candle represents one day of price action and I put the
Keltner channels up there on the standard settings which is great for
swing trading of course you can use this on different time frames as well day
traders can use Keltner channels long term buy and hold investors can use them
as well you just have to change the settings alright so you've got the the
upper channel in the lower channel and the mid line it's a lot like Bollinger
Bands where you have the the upper band in the lower band and the mid line so
it's pretty much the same thing as Bollinger Bands where if if the
candlestick touches or pierces the bottom line then that means that it's
relatively cheap or oversold and that means you can buy it if you want to
because it's on sale it's a bargain and when it reaches you know touches or
pierces the upper line that means that it's overbought or expensive which means
that if you already own it maybe if you bought it down here you can sell it when
it reaches or pierces that upper band there all right so for example you could
have bought it here and sold it here and then bought it here waited a while and
then finally sold it here when it pierced the upper line there and so on
and so forth okay now if you already know about Bollinger Bands then you may
notice that Keltner channels are very similar except notice that Keltner
channels keep the same width between the lower line and the upper line it stays
about the same width pretty much always even when there are extreme price
movements like for example with Lumber Liquidators at the beginning of august
there was a large jump up here due to an earnings report there was an earnings
beat alright and so there was an extreme price movement here as happens sometimes
when there are earnings reports but even with extreme price movements the you
know that the lines don't don't get too wide or too narrow
alright they pretty much stay the same distance between the upper and lower
lines there alright and so it's kind of a steady indicator it's not very extreme
alright so right now I'm going to compare this gonna go down on stock
charts and I'm going to compare this to the Bollinger Bands so you can see the
difference alright so we're gonna put both up there and it might be a little
bit confusing but the blue lions are the Keltner channels you were just looking
at those and now I also added the Bollinger Bands and notice how much
wilder and crazier the Bollinger Bands are
okay if you look at this here we are here's the earnings beat and an extreme
price movement to the upside you see how the Keltner channel is pretty much they
get a little bit wider but not much okay they pretty much stay about the same
distance same width between the the liens here whereas the Bollinger Bands
look how skinny you know how tight the band's got here okay there was a squeeze
here and it got really narrow here and then after this earnings beat suddenly
they got really wide very very wide so this is pretty extreme and yes Bollinger
Bands are great if you're trading options and you want an indicator to
tell you when you know if there's a squeeze it might tell you that
volatility is low and then when the band's the Bollinger Bands get really
wide that might tell you that volatility is much higher much greater okay so I
have to admit that Keltner channels don't give you those those squeezes and
those releases to the same extent that Bollinger Bands do however if you want
something a little steadier something that doesn't have extreme you know
differences between the width because this might be hard to trade if you're
the type of person that likes to buy at the lower band and then sell the upper
band you know when it when it's that narrow with the Bollinger Bands it's
hard to trade it you're not gonna make much money I mean what are you really
gonna buy it here and then sell it here you're not gonna make much money that
way okay it's too it's too tight at least the Keltner channels give you some
breathing room here at least it doesn't get this tight and also when it's
extremely wide I mean you know when it gets this wide or what are you
gonna wait till it gets all the way down here before you buy it and then wait
until it goes all the way up it's not even on the chart anymore the top the
upper Bollinger Band okay so it's it might be difficult if you're gonna buy
low and sell high to really trade with Bollinger Bands sometimes when it gets
extremely narrow or extremely wide whereas the Keltner channels are much
steadier as you can see when it comes to the width all right let's also take a
look at will do Domino's Pizza how about that one let's compare that one we'll
put up first we'll just put up the will take away the Bollinger Band so you can
look at just the Keltner channels alright and that's under overlays here
on stockcharts.com alright so as we can see yes there I remember there was an
earnings report in late July is there any earnings miss obviously and
it went down even more and by the way that's why I tell people use the use the
three day rule after a big earnings miss wait three days before you buy it and
this is a perfect example because it's likely to keep going keep going down
over the next few days alright so if you had bought three days later you would
have done pretty well but anyway so these are Keltner channels and again
yeah they get a little bit skinnier a little bit wider but you could still buy
when it pierces the lower channel here and then sell when it reaches the upper
line here Ritson repeats so on and so forth and it's very steady even when
there are extreme price movements movements like we see with this earnings
miss the Keltner channels don't get that much wider and so you can still trade
them perhaps more easily if you're gonna buy low and sell high let's compare that
again to Bollinger Bands which is right here under overlays
and we can see yeah look look see look how skinny let look how tight the bands
are here alright it's kind of hard to trade this if you know you're gonna buy
here and sell here you're not gonna make much money that way alright when it gets
that you know that tight alright and it gets tight here and then extremely wide
to the point where it might be hard to trade might be hard to buy at the bottom
band and sell the top one when they're this wide alright whereas the Keltner
channels the width is pretty steady here and it remains that way and so that's an
advantage for people who would rather trade that way by the lower band sell at
the upper line so on and so forth killer channels may be the way to go for you
alright and so it's a simple strategy that you can use with Keltner channels
it's not for everybody some people prefer the Bollinger Bands they like
they like the fact that they get skinny and wide so they can gauge or measure
how volatile the stock has been recently so try both check them out maybe even
put one on top of the other and really test them out to see which one you like
better alright so I hope this is helpful to you that was just a really brief
introduction to Keltner channels and how I would compare and contrast them to
Bollinger Bands because they are similar in many ways alright so if you'd like
more help with putting together a trading or investing plan if you have
questions about indicators you want some help with them you can contact me at any
time my name is David Modell and my email address is David Modell at
gmail.com thank you so much for watching this I hope that you'll give this video
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