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The Keltner Channel Breakout is a trading strategy that creates short signals when the close price breaks above the high band/line of the Keltner channel.
This trading system is short only. It enters short orders when the close price of a security crosses above the high band of the 40-Bar Keltner channel and when the 100-Bar simple moving average is higher than 1.05 times the Keltner channel middle band.
A position is covered (exit) when the underlying security close price becomes lower than the middle band of the Keltner channel or when the position is stopped by the 20% trailing stop.
The maximum number of positions of the trading system is 10. With a bandwidth value of three (parameter of the Keltner channel), the annual return of the simulation is almost 50%, the Sharpe ratio is higher than 1.8 and the maximum drawdown is -23%.
The upper band of a Keltner Channel is the sum of an exponential moving average and the average true range while the middle band is an exponential moving average.
This trading strategy requires the Keltner indicator, which can be downloaded here: Keltner Channel.
I have also used the Keltner channel indicator to create a composite indicator (Keltner Channel Market Composite). This market indicator may be used in a trading rule to time the market.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
