Home > European Markets
Lessons in Technical Indicators: Part 1 - Keltner Channels
How to use Keltner channels to complement your wave analysis
 |
 |
By Nathaniel Williams
Tue, 09 Mar 2010 11:45:00 ET |
|
|
Greece has been a mainstay in the news recently because of its sovereign debt crisis. The movement of its stock index, the Athens Stock Exchange, though, provided Elliott Wave International's European Short Term Update editor Chris Carolan an opportunity to teach his subscribers about one of the useful technical indicators that he likes to combine with Elliott wave analysis -- Keltner channels.
Keltner channels, like the one above, are created from adding and subtracting a multiple of the price movement's "Average True Range" from its "Moving Average."
Now look at the chart above. As you can see, the ASE kept pace with top of the Keltner channel when prices moved up in October 2009. Prices then turned lower and bounced off the bottom of the Keltner channel around the beginning of November. After a slight tick up again, the ASE rode the bottom of the Keltner channel until mid-December, inched up, grazed the top of the channel and retreated once again.
What does all of this mean? A lot! The interaction of the price and the channel can help you determine whether the unfolding Elliott wave patterns are impulsive or corrective. As you may already know, impulses and corrections are the two major groups into which the Wave Principle divides all market patterns. Impulses subdivide into five waves and point in the direction of the larger trend. Corrections are usually three-wave moves that always go against the main trend.
So, if you can use the Keltner channel to help you identify the type of the pattern, you can then determine the larger trend. And that's what investing is all about, isn't it?
As Chris explains in his online course, in impulsive waves, the channel bends. In the chart above, you can see that "bending" when prices "rode the channel" in October's impulsive wave up and then in the November-December impulse down. Visually, the channel appeared to bend to accommodate a price trend.
In corrective waves, prices reverse and cross the channel. You can see that in wave 2 in the chart above. See how prices abruptly jumped from one side of the channel to the other in late October and late December? Instead of following the channel, prices appeared to react against it.
This is just one part of applying Keltner channels to forecasting your favorite market. You can learn more today in Chris Carolan's on-demand, online trading course "3 Technical Indicators to Help You Ride the Elliott Wave Trend." In this 42-minute video, you'll learn Chris's favorite three technical indicators -- including Keltner channels. He shows you how to apply them using detailed charts, real-world examples and practical insights.
You can purchase "3 Technical Indicators to Help You Ride the Elliott Wave Trend" for just $49 here -- but please don't! Get it FREE when you start your risk-free subscription to one of the following services:
(Already a subscriber to Global Market Perspective, The European Short Term Update or The Asian-Pacific Short Term Update? View the trading course here.)
Tags: technical analysis, Keltner channels