TRADING BREAKOUTS WITH KELTNER CHANNELTrading Breakouts with Keltner Channel
When it comes to breakout trading, Keltner Channel is a very powerful indicator. The keltner channel breakout system works best when volatility rises. However, the Keltner indicator measures not just the volatility, but it can also show anomalies in the price behavior.
Since Keltner channel indicator is lagging in nature, we can use a secondary tool like the ADX indicator to give us more confluence. These two indicators can help us catch explosive breakouts.
With the ADX we measure the strength of the breakout. Generally, and ADX reading above the 20 level is considered to be the beginning of a bullish/bearish trend. Any reading below 20 signals a period of consolidation.
The ADX needs to continue to rise to suggest that the trend is strong. When the Keltner Channel is used in combination with the ADX indicator, you can trade breakouts with objectivity.
Trigger conditions for buying breakouts:
Keltner Channel bands need to turn flat.
Price need to break above the upper band.
ADX needs to cross above the 20 level.
Follow the above trading rules if you want to avoid most of the false breakouts.
