The Keltner Channel breakout methodology works great during the transition from range-bound, trendless markets to uptrends or downtrends. However, during those actual trendless market periods, buying breakouts can be costly. During trendless periods, using the Keltner Channel as an overbought/oversold indicator can prove profitable.
The chart below of the Nasdaq 100 ETF (QQQQ) shows an example of a trendless market:
Keltner Channel Oversold Buy Signal
When there is a price breakout below the lower Keltner Channel band, wait until the price closes back inside the Keltner Channel. By waiting for a close back inside the Keltner Channel, a trader usually can avoid getting caught in a true Keltner Channel downside breakout.
Keltner Channel Overbought Sell Signal
With a price breakout above the upper Keltner Channel band, it may be advisable to wait until the price closes back inside the Keltner Channel. When a trader waits for a close back inside the Keltner Channel, that trader can usually avoid large losses by not getting caught in a true Keltner Channel breakout to the upside.
When combined with other technical analysis indicators, Keltner Channels can be a helpful tool in a trader's arsenal.
