Trading Success Principles Keltner Bands & Key Moving Averages · Trading Success Principles...
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Trading Success Principles
Keltner Bands & Key Moving Averages
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The Keltner Channel Bands (16,1.3%)
Based on the market’s volatility.
A 16 period bar exponential moving average is used for the mid Keltner band.
The upper and lower Keltner bands are based off of the 16 bar EMA with a multiplier constant of 1.3%
above the mid Keltner (upper Keltner band) and a 1.3% multiplier below the mid Keltner (lower Keltner
band).
These parameters work extremely well for ANY market and ANY time frame.
2 General Uses for the Keltner Channel Bands:
1. Identifies SUPPORT in an Uptrend and RESISTANCE in a Downtrend.
2. Upside and downside mid-Keltner penetrations through the 79 SMA and 89 EMA.
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SUPPORT in an UPTREND
The Keltner channel bands help identify market SUPPORT (potential BUYS) in an UPTREND.
This market SUPPORT comes into play when the market retraces down off the highest high in an
UPTREND between the MID to LOWER Keltner channel bands.
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RESISTANCE in a DOWNTREND
The Keltner channel bands help identify market RESISTANCE (potential SELLS) in a DOWNTREND.
This market RESISTANCE comes into play when the market retraces up off the lowest low in a
DOWNTREND between the MID to UPPER Keltner channel bands.
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Upside Mid-Keltner Penetrations
When the MID Keltner penetrates UP through both the 79 SMA and 89 EMA (or 3 consecutive price
bars close with their LOWs COMPLETELY ABOVE the upper MA), the TREND generally has changed to
the UPSIDE.
The 79 SMA and 89 EMA typically will act as SUPPORT (potential BUY LONG entries).
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Downside Mid-Keltner Penetrations
When the MID Keltner penetrates DOWN through both the 79 SMA and 89 EMA (or 3 consecutive
price bars close with their HIGHs COMPLETELY BELOW the lower MA) the TREND generally has
changed to the DOWNSIDE.
The 79 SMA and 89 EMA typically will act as RESISTANCE (potential SELL SHORT entries).
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The 79 Simple and 89 Exponential Moving Averages
Essentially, a trend-following device to identify or to signal that a new trend began or that an old trend
ended or reversed.
Used in conjunction with the MFAM.
Used in determining WHEN and WHERE a TREND will begin and end:
When the mid Keltner crosses UP through BOTH the 79 SMA and 89 EMA (or 3 consecutive price
bars close with their LOWs COMPLETELY ABOVE the upper MA) and the MFAM also is bullish,
the market is starting a new UPTREND.
Both MAs should act as SUPPORT (a potential BUY zone).
When the mid Keltner crosses DOWN through BOTH the 79 SMA and 89 EMA (or 3 consecutive
price bars close with their HIGHs COMPLETELY BELOW the lower MA) and the MFAM also is
bearish, the market is starting a new DOWNTREND.
Both MAs should act as RESISTANCE (a potential SELL zone).
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8 Key Moving Average (MA) Concepts to Understand
1. Rising Moving Averages (MAs) generally represent positive market action or strength.
2. Falling/declining MAs generally represent negative market action or weakness.
3. The sharper the slopes of the MAs, the stronger the market is in that direction.
4. During strong UPTRENDS, pullbacks tend to halt (act as SUPPORT) at (or near) the rising MA(s).
5. During strong DOWNTRENDS, rallies tend to halt (act as RESISTANCE) at (or near) the declining MA(s).
6. Following mid Keltner channel band penetrations of the MAs, market reactions/retracements in price back
to the MAs are very likely.
7. An upward penetration through a rising MA is considered BULLISH; therefore, good BUY opportunities
present themselves when a strong market pulls back (retraces) down to (or near) its rising MA(s).
8. A downward penetration through a declining MA is considered BEARISH; therefore, good SELL
opportunities present themselves when a weak market pulls back (retraces) up to (or near) its declining
MA(s).
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Market trading ABOVE MAs:
BULLISH MAs (slanting up)
indicate a strong market that
can be bought on pullbacks.
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Market trading BELOW MAs:
BEARISH MAs (slanting down)
indicate a weak market that can
be sold on rallies.
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TREND Determination (UPTREND)
When the mid Keltner crosses UP through BOTH the 79 SMA and 89 EMA (or 3 consecutive price bars
close with their LOWs COMPLETELY ABOVE the upper MA) and the MFAM also is bullish, the market is
starting a new UPTREND.
Both MAs should act as SUPPORT (a potential BUY zone) when a market retraces down to (or near) its
rising MA(s).
LOW
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TREND Determination (DOWNTREND)
When the mid Keltner crosses DOWN through BOTH the 79 SMA and 89 EMA (or 3 consecutive price
bars close with their HIGHs COMPLETELY BELOW the lower MA) and the MFAM also is bearish, the
market is starting a new DOWNTREND.
Both MAs should act as RESISTANCE (a potential SELL zone) when a market retraces up to (or near) its
declining MA(s).
HIGHThe 79 SMA & 89 EMA acting as
Resistance in a DOWNTREND
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Trend Change Criteria
UPTREND Changing into a DOWNTREND (2 of the Following 3 Criteria Must Be Met:
The MRAL (i.e. the highest AL in the UPTREND) MUST be taken out to the DOWNSIDE,
The mid-Keltner MUST penetrate DOWN through both the 79 SMA and 89 EMA (or 3 consecutive
price bars MUST be trading COMPLETELY BELOW the lower moving average), and
The market MUST penetrate DOWN through 62% Fibonacci retracement of the ENTIRE DAY.
DOWNTREND Changing into an UPTREND (2 of the Following 3 Criteria Must Be Met):
The MRAH (i.e. the lowest AH in the DOWNTREND) MUST be taken out to the UPSIDE,
The mid-Keltner MUST Penetrate UP through both the 79 SMA and 89 EMA (or 3 consecutive price
bars MUST be trading COMPLETELY ABOVE the upper moving average), and
The market MUST penetrate UP through 62% Fibonacci retracement of the ENTIRE DAY.
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UPTREND Changing into a DOWNTREND
When a minimum of 2 of the 3 criteria for a change in trend has been met.
HIGH
Downside Penetration of 62%
Fibs of the Day (LOW to HH)
LOW
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DOWNTREND Changing into an UPTREND
When a minimum of 2 of the 3 criteria for a change in trend has been met.
HIGH
Upside Penetration of 62% Fibs of
the Day (HIGH to LL)
LOW
NH
AL
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Two other Key Moving Averages that are Commonly used as
Support and Resistance
The 50 Exponential Moving Average (EMA) and the 200 EMA are very common among institutional and
many “at-home” retail traders alike, thus making them a self-fulfilling prophecy.
Since so many traders watch and use these moving averages, they become very powerful Support
(when looking to BUY in an UP Trend) and Resistance (when looking to SELL in a DOWN Trend).
Utilizing these moving averages will help keep you from taking otherwise potentially bad trades
against the trend of the market.
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50 EMA / 200 EMA acting as SUPPORT in an UPTREND
The 50 EMA and the 200 EMA may be used to help identify market SUPPORT (potential BUYS) in an
UPTREND. This market SUPPORT comes into play when the market retraces DOWN off a NEW HIGH
and pulls back to near the 50 EMA and/or 200 EMA.
The 50 EMA acting as
SUPPORT in an UPTREND
LOW
HIGH
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50 EMA / 200 EMA acting as RESISTANCE in a DOWNTREND
The 50 EMA and the 200 EMA may be used to help identify market RESISTANCE (potential SELLS) in a
DOWNTREND. This market RESISTANCE comes into play when the market retraces UP off a NEW LOW
and pulls back to near the 50 EMA and/or 200 EMA.
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