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| Added: June 08, 2008 |
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TradeStation, indicator
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The Keltner Channel (provided as part of TradeStation) plots a channel band above and below a standard moving average line with a distance measured in units of Average True Range.
This indicator Keltner Price borrows from Keltner channel and plots how far price is above or below the moving average, measured also in units of Average True Range.
When price have gone "too far" away from the moving average and then reverse direction, the momentum can usually last a few days, especially if the reversal is in the direction of the channel itself. Using the Keltner Channel indicator, you can visually see such price movements by adjusting how many ATRs from the moving average line is considered "too far".
The Keltner Channel is a good filter for trades. This is because reversals that happen when price is too far away from its simple moving average has a higher probability to last longer and deeper than reversals that happen when price is close to its simple moving average. Using an Exponential Moving Average of price as guide, you can watch for reversal of direction after price has ventured too far away from the simple moving average.
When used in RadarScreen, Keltner Price is a good way to identify reversals as well as breakouts. Extreme ATR values are usually breakouts. But be sure look for other signs such as volume to confirm.
Note that you still need to use your own judgment to decide whether price is likely to return to its moving average line in the next few bars, and even if so, whether it's a good trade. For example, the drop after a rally not confirmed by a rise in volume is more likely to last longer and deeper than one that was confirmed by volume. Also, high price returning to a steep rising moving average could result in a flat trade, if not a loss.
Also look for patterns in Keltner Price itself such as head and shoulders, or double top, lower lows, etc for advanced warnings of reversals.
Code:
Type : Indicator, Name : Keltner Price
{ plot the number of ATRs between price and the 20 day MA }
input:
Length( 20 ),
Price( Close ),
Warn( 2 ),
OverBColor( Red ),
OverSColor( Green );
vars:
Avg( 0 ),
ATR( 0 ),
diff( 0 );
Avg = AverageFC( Price, Length ) ;
ATR = AvgTrueRange( Length );
plot1( (Price - Avg) / ATR, "n ATRs" );
Plot2( Warn, "OverSld" ) ;
Plot3( -Warn, "OverBot" ) ;
Plot4( 0, "Zero" ) ;
{ Color criteria }
if Plot1 > Warn then
SetPlotColor( 1, OverBColor )
else if Plot1 < -Warn then
SetPlotColor( 1, OverSColor ) ;
Source: http://www.tradestation.com
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