Channel Trading, Scalping With Keltner Channel

One of the most complicated thing that I feel when making Volatily Scalp system is anticipating a drastic decline of Average True Range (ATR) in record time. As a scalping system based on the trading channel, determining the length of the period Keltner Channel is very important. This is because the channel width of the Keltner Channel indicator can change over time depending on market volatility.
In the Channel trading, generally upper channel and lower channel act as overbought and oversold levels. Buy position is taken when the price hits or below the lower channel and sell position taken when price hit or above the upper channel. No matter with indicators that used to create the channel. As for an exit strategy there are many options but generally is the opposite of the entry signal itself.
Now let us look at the chart below. On this chart I put a Keltner Channel indicator (20.2). Red vertical line to mark the beginning of the transaction (at 21 GMT 1). I also placed an indicator CK_Speed (20.50) and ATR. (20).
It should VS_Eurocross can get sell signal as I describe in the chart above. Although the position of an exit may be slightly different. But what I want to show is how the system with the Keltner channel (20.2) miss a couple of profitable trades. Therefore, I draw 2 horizontal lines that act as a channel to clarify what I mean.
I've been plagued with this problem. And it seems impossible to know what is the optimal length of Keltner Channel Period at any time. But when I'm working on EA's Charlotte, I always strive to capture this pattern. I use the High / Low of the last 2 bars when the entry signal occurs as a place of exit. The results with the same chart as above, charlote EA is more aggressive.

Trailing Stop

Do not let a profit turn into losses. This is a principal in trading system that we often hear from the master trading. If prices move in accordance with our position, use a trailing stop or put our stop losses in the break event point. So if you already have a profit of 10 pips, quickly activate the trailing stop. What happens then prices turned direction and touches your stop losses kicking you out, then turned again in accordance with your position and this time the price moves fast. Ho .. ho .. ho. if I were near you that time, believe me I would also go as fast as possible.
Trailing Stop With Fractal and Bar High-Low
There is a change from a trailing stop method that I use this time(Charlotte). Previously I used the Keltner Channel, so this time I use 2 Fractal and the latest 2 Bar as stop losses. But I still use Keltner Channel as a guide to do the trailing, only the position of stop losses are no longer on the Keltner Channel itself.
In order to obtain the position of stop losses I compare the highest / lowest price of the last two fractal. I compare this price again with the last 2 bars. I use the last 2 Bar considering the highest / lowest price could be in one of this Bar. Trailing stop itself is activated when the price penetrates the Upper / Lower channel of Keltner Channel indicator.
The principle I want to reduce the risk in trading. While difficult to make a profit, then we better think about how to reduce losses. And trailing stop this is one way to reduce the risk of each transaction.

Breakout System

I want to share about breakout technique which I am trying to do, so can be used as automatic trading or EA. Maybe coincidence or not, what I'm talking about here has been discussed elsewhere either in private or open in somewhere. And anyway, the contents of this post is not intended as recommendation to your daily trading. But at least this may be useful for traders who have similar interests to explore technical breakout.
Breakout Problem
A common problem encountered in making the trend following system is to avoid what is often called a whipsaw. If the entry technique is using a breakout system, the main problem of course is a false breakout. Even today generally it is easier and more common system against the entire breakout, like all of EA I share here.
Generally, to avoid the whipsaw, the developers of trading system to add various kinds of indicators that serves as a filter. For trend filter, a commonly used indicators such as the Average Directional Movement Index or ADX. Besides, the used period and Time Frame is also determining the number of whipsaw. The shorter the period and Time Frame that we used the more whipsaw, and vice versa.
There is also a breakout system developed using the European session as a filter. And as I recall one of popular EA that using this technique is Hans123. In this case it use a trading time as a filter instead of mathematical indicator.
King Keltner Strategy
Chester Keltner introduces King Keltner trading system in 1960. Chester Keltner creates a channel based on MovingAverage and added / subtracted with the Average True Range as an upper and lower channel. Specify a period of Moving Average and Average True Range. To create an Upper Channel, you add the Moving Average value with the Average True Range. To create Lower Channel subtracts the value of moving averages with the Average True Range.
This system is very simple, a buy signal occurs when prices penetrate the upper channel and sell signal occurs when prices penetrate the lower channel. Even with optimization, it is possible to make a stop Reversal System. But in general with this system, we will close all positions when prices turned back into Moving Average. One possible variation is the close only breakout. The buy and sell signals occur if the price closed above/below the channel.
Become an Automatic Trading System
With no specific rule to use the same period between the Moving Average and Average True Range, we can perform optimization on both these variables. Also we can try to optimize the deviation that we use. To reduce whipsaw, can be added ADX, and is also can be optimized. But as I said from the beginning I was not going to make this EA. Anyway you can search for this EA on the Internet; I think many are available for free.
This is just an introduction; in the next post I will explain what my observation is.

Keltner Channel and Bollinger Band

When I learn about Average True Range and Standard Deviation indicator, I find it interesting when put Keltner Channel and Bollinger Band together on a chart. As we know, that the Keltner Channel is made from a combination of Moving Average and Average True Range. And Bollinger Band is combination of Moving Average and Standard Deviation.
What's interesting my attention when Bollinger Band (20.2) is located inside the Keltner Channel. (20.1). This is a technical condition which is very appropriate to describe the market conditions are in the sideway. Moving Average is located right in the middle chart. Support and resistance are on the right Bollinger Band. Unfortunately, often in a situation like this, the price Range doesn’t allow us to make profitable trades. Especially with the wide spread condition plus the possibility of getting slippage when taking and liquidating a position.
However, the longer market in the situation likes this, and then will be going to the big new trend. Possibility of profit that we get, can be lost quickly when the breakout occurred.

Correlation Indicator

Another popular method to scalp cross pair is using correlation technique. I get some suggestion to use correlation indicator to improve my EA performance. But first I have to make correlation indicator that match with my system.
And I get idea to make correlation indicator based on market volatility. The main principle of this indicator to compare the mayor pairs volatility. And therefore the formula that I use is so simple. Take the difference between current price and Moving Average of Median Price and then divide by current ATR.
The Indicator has 2 input variables for Mayor Pair that will be measured. By default it will measure the EURUSD and USDCHF pair. These pair should form a negative correlation that if EURUSD showing a positive number then USDCHF should show negative number. This is will be formed by two lines that make us easy seeing the correlation.
The histogram is the difference (absolute value) between both lines. I have tested to change CK_Speed indicator in VS_EURCHF, and showing better result, however the result on VS_EUROCROSS is worst then using CK_Speed indicator.
VSCorrelation