Catch the market trend and capture long term profits. King Keltner trading strategy shows you how!
Updated: May 30
Catastrophic effects of the deadly coronavirus are being felt not just on public safety & health. It has caused pandemonium on stock markets all over the world. Sensex & Nifty witnessed their largest single day fall ever. Suddenly, no one knows where the markets are going to go. Are they going to bounce back or is there more bad news?
Although it is impossible to predict market direction, there are some tools & tricks which can help us get a sense of the general trend.
The smallest of small players in the market look to make money via long term investing. But how do you know when to invest? And is the price on an upward trend or downward trend? Lets find out...
In the 1960s, Chester Keltner developed a strategy which can help to identify the general trend of a stock. The main indicator in this trading system is the moving average of the high, low and closing prices. This moving average line is flanked on each side by an upper band & lower band, formed by taking the average of the high-low range. This complete system is called Keltner band or Keltner channel.
According to this strategy, when the market breaks the upper band, it signals an upward or bullish trend. Conversely, when it breaks the lower band, it signals a downward or bearish trend. These points indicate a buy and sell signal respectively.
This system will fail when the market reaches an exhaustion point instead of a trend change. In order to avoid capturing failures, a stop loss is set at moving average price. This is also the exit point of the trade.
So, the trade set up is as follows:
Enter Long when: Today's movAvg is greater than yesterday's
AND Close >= upBand
Enter Short when: Today's movAvg is less than yesterday's
AND Close <= dnBand
Exit Long when: Close <= liquidPoint
Exit Short when: Close >= liquidPoint
movAvg = Average(((High + Low + Close)/3),40)
upBand = movAvg + Average(TrueRange,40)
dnBand = movAvg – Average(TrueRange,40)
liquidPoint = Average(((High + Low + Close)/3),40)
This is a long-term strategy. Short term trades taken based on this system will be counterproductive. Profitable trades would be less than 50%. But if you can catch the signal at the right time, it will more than make up for the losses.
Overall, the trading outcome is quite positive. The King Keltner strategy performs well in almost all test markets. This also shows its robustness. The biggest feature of this system is that it uses only 2 parameters which are the same for all markets.
Do you have any further optimization ideas for this strategy??
We can help you determine the results of such fine-tuning. To backtest your trading strategy, write to us on email@example.com.
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