Keltner Channel Indicator MT4 | MT5

The Keltner Channel Indicator, developed by Chester W. Keltner in 1960, is classified as a channel indicator. It consists of three bands, a middle line (EMA), and two outer bands (ATRs), that create a price channel. The width of the channel expands and contracts based on market volatility. Unlike the other channel indicators, this indicator relies on the average true range, making it smoother and more stable in trend analysis.

By applying this indicator on a chart, traders can confirm the direction of the trend with the middle line, and spot potential reversals through the upper and lower bands. In addition, this indicator offers valuable functionalities, signaling strong buying and selling opportunities and providing insights into price fluctuations.

The secret of the multiple uses of this indicator is explained by its formula:

• Middle line = EMA ( Close, N )
• Upper Band = Middle Line + ( ATR * K )
• Lower Band = Middle Line – ( ATR * K )

                 N: period for the EMA (commonly 20)

                 K: multiplier (typically 1.5 or 2)

To understand how the Keltner Channel Indicator can be used in different market conditions, I will provide four examples demonstrating its usefulness in each scenario: 

1. In the CHFJPY chart on MT4, the middle line moves upward while the candles rise above the upper band, both signaling a strong uptrend. By reaching the trend’s end, a consolidation phase occurs on the top, and when the price candle drops below the lower band, it signals a reversal, making the start of a downtrend.

2. In the EURGBP chart on MT5, the blue line moves downward, and the candles fall below the lower band, confirming a strong downtrend. As the trend nears its end, a sideways phase takes place at the bottom, and when the price candle moves above the upper band, it signals a reversal, initiating an uptrend. 

3. In the USDJPY chart on MT4, after a price consolidation at the top of the chart, the price crosses below the lower band, indicating a bearish breakout, and signaling a strong downtrend for the trader. 

4. In the AUDCHF chart on MT5, after a sideways phase at the bottom of the chart, the price breaks through the upper band, providing a bullish run for the trader, and signaling a long opportunity. 

To enhance accuracy and filter false signals, this indicator is best used alongside other indicators such as RSI, Moving Average, and MACD.