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Keltner Channel Overbought & Oversold

Keltner Channel

  1. Keltner Channel Defined
  2. Keltner Channel Overbought & Oversold

The Keltner Channel breakout methodology could work great during the transition from range-bound, trendless markets to uptrends or downtrends. However, during those actual trendless market periods, buying breakouts might be costly. During trendless periods, using the Keltner Channel as an overbought/oversold indicator might prove profitable.

The chart below of the Nasdaq 100 ETF (QQQQ) shows an example of a trendless market:

keltner channel overbought and oversold signals

Keltner Channel Oversold Potential Buy Signal

A trader might see a price breakout below the lower Keltner Channel band, and wait until the price closes back inside the Keltner Channel. By waiting for a close back inside the Keltner Channel, a trader might avoid getting caught in a true Keltner Channel downside breakout.

Keltner Channel Overbought Potential Sell Signal

With a price breakout above the upper Keltner Channel band, it might 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 might 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 could be a useful tool in a trader's arsenal.

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