Keltner Channels vs Bollinger Bands - Which is Better Indicator?

Keltner Channels vs Bollinger Bands

There has been many post on Keltner Channels vs Bollinger Bands. Why use one over the other?

We are for one who thinks all indicators have their own place if you use them correctly. Also, if it’s something that you feel comfortable using. Both indicators have its own pros and cons. So instead of making it a case of which is better (Keltner Channels vs Bollinger Bands), we think using both together as a trading strategy might serve you well as a trader in the long run.


Keltner Channels vs Bollinger Bands

The Keltner Channels is a good timing indicator when used in combination with the Bollinger Bands can produce more reliable trading signals than when you’re just relying on one of the two indicators alone. Even though both indicators are used to measure the general market volatility as well as overbought/oversold conditions the difference is that the Keltner Channel’s bands are created by using the Average True Range while the Bollinger Bands are created by using the Standard deviation.

Going forward, we’re going to look into the differences between the two indicators and last but not least you’re going to learn the benefits of combining the two indicators for fine tuning your entry and exit points.

Keltner Channels

The Keltner Channels also allow us to select those currency pairs that show repetitive and predictive price patterns in this regard it eliminates a lot of the noise and it gives us the chance to only trade the best available currency pairs. Basically, the way the Keltner Channels work is as follows: the middle line is the 20-day Moving Average; the distance from the center to the upper band and the distance from the center to the lower band is 2x times the Average True Range of the past 10 days. The indicator calculates the Average True Range for the last 10 days and then it multiplies by two and then it plots the upper channel and the lower channel.

EURUSD 15 Minute Keltner ChannelsEUR/USD 15 Minute Keltner Channels

In practice, the Keltner Channel will generate more buy and sell signals than the Bollinger Bands and in order to see the difference we’re going to look at some real examples. In Figure 1 we have the EUR/USD 15-minute chart using the Keltner Channel indicator and we can spot in total 9 buy and sell signals while in Figure 2 we have the same chart but this time we apply the Bollinger Bands we can spot in total only 6 signals.

EURUSD 15 Minute Bollinger BandsEUR/USD 15 Minute Bollinger Bands

For fine tuning your entry points, we’re going to use both the Keltner Channel and Bollinger Bands indicator together instead of trying to pair up which is better (Keltner Channels vs Bollinger Bands). This is a scalping strategy suitable for day traders that want to be in-and-out of the market very fast.


Keltner Channels and Bollinger Bands Strategy

The Keltner Channels and Bollinger Bands Strategy rules:

  • Currency Pair: EUR/USD;
  • Time Frame: 15 Minutes;
  • Keltner Channel and Bollinger Bands: Default Settings;
  • Buy Signal: Wait for the price to break below both the Keltner Channel and Bollinger Bands and enter the trade once we close back just inside the Bollinger Bands; with a stop loss below the most recent low and a profit target to the upper band of the Keltner Channel.
  • Sell Signal: Wait for the price to break above both the Keltner Channel and Bollinger Bands and enter the trade once we close back just inside the Bollinger Bands; with a stop loss above the most recent high and a profit target to the lower band of the Keltner Channel.

Keltner Channel and Bollinger Bands - Sell SignalTrading with Keltner Channels and Bollinger Bands – Sell Signal

In the above figure, we can spot two short trade examples with the first one ending as a losing trade and the second one being a winner and because the second trade had slightly better RR we ended up as a winner.

Keltner Channels and Bollinger Bands - Long SignalTrading with Keltner Channels and Bollinger Bands – Long Signal

In the above chart, we’re presenting long trade examples and how one would have benefited from using the Keltner Channel and Bollinger Bands Strategy. Both Keltner Channels and Bollinger Bands can be used together for better results instead of having to choose one over the other.

Why not use both if you can?

 

 


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