NASDAQ is at another all-time high again!

“Should I buy now?” Or “Should I wait?”

You fear missing out, but you are also afraid of buying at the top.

Don’t worry. Keltner Channels can help you find ideal entry points for quality stocks, surpassing even Warren Buffett’s entry strategy.

The Basis of Keltner Channel

Keltner Channels are volatility-based envelopes that move up and down above and below an exponential moving average.

They help traders see whether a stock is trending or just bouncing around in a trading range. When the tracks are close together, it means the stock is not moving much. When they are far apart, it means the stock is making big moves.

When the market is in an established trend, the price movement in between the two bands represents whether the company is overbought or oversold. When used alongside indicators like moving average ribbons, we would spot wonderful companies at a wonderful price, which is even better than the entry strategy mentioned by Warren Buffett.

Keltner Channel Entry Strategy

In this trading system, we will utilize three trading indicators, Keltner Channels, Simple Moving Averages, and TradeDots indicator.

This strategy ONLY works on stocks with a well established trend. Therefore, we need to first filter a list of stocks that fulfill our criteria.

We need to first filter out penny stocks and stocks that do not have growth over the years. Read our blog about stock screening for more details.

Then, we will get a list of stocks having moving averages stacked on top of one another, indicating that the stock has entered a well-established trend.

After that, we will then use the Keltner Channels indicator combined with the TradeDots indicator to spot favorable entries.

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Whenever the price touches the lower band of Keltner Channels, with a confirmation signal from TradeDots, it indicates that the stock is trading at a fair price.

As all stocks we selected are at a trending stage, we expect the stock could bounce back in a short period after our entry.

Keltner Channel Exit Strategy

There are a couple of ways to exit your trade, and the performance varies across different assets.

Therefore, you should backtest and try different exit strategies yourself to fit into the different trading assets you choose.

A less risky way is by using mean reversion, which is to exit your trade after the price touches the middle EMA band in the Keltner Channels. However, this strategy also limits your potential profits.

Therefore, the riskier way to exit the trade is by waiting for the green dots from the TradeDots indicator. Or for some stocks, you could even hold for a couple of months, until the price touches one of the simple moving averages.

You could use other hints, for example, engulfing candlesticks, or high selling volume as a reference to make your decision.

Remember, the greater the reward comes with greater risk as well.

Risk and position management should be above everything so that you can stay in the game forever.

Beyond TradeDots: Expanding Your Toolkit

TradeDots is only one of the options you could mix with the Keltner Channels indicator. For example, the following indicators could also act as a replacement for TradeDots.

Bollinger Bands, also an indicator similar to Keltner Channels, offer additional insights into volatility and potential breakouts.

Machine learning algorithms can also help analyze vast data and identify hidden patterns, further refining entry and exit points.

Bottom line

Keltner Channels, when combined with other tools and proper risk management, can guide you to buy quality stocks at advantageous prices.

There are a limitless number of ways for you the further develop your strategy.

So, try out any indicator you like and backtest the result all over again. Strategy development is a life-long process.

You will enjoy seeing your wealth grow exponentially with your hard work. Subscribe to TradeDots now to unlock your inner Warren Buffett!

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Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions.