[isatrader]

Hello Isatrader,

I noticed that you use three levels of Keltner Channels on your charts, do you use that to inform how extended a stock is, buy or sell signals, or to complement any other specific part of the stage analysis approach? Apologies if you've already documented this somewhere, I was searching for an answer but wasn't able to find anything specific - thank you!

Hi Jona,

The 3ATR Keltner Bands are something I picked up from using the Alexander Elder's Spiketrade service many years ago when I first started trading before I came to Stan's work. But they have stuck with me over the years as are a great visual way to see short-term risk, as well as being a useful scanning tool and a visual guide to whether a stock is showing a change of behaviour.

You can use them to see how extended a stock is in either direction, as a quick move to the +3x ATR band tells you that the rubber band has get stretched to the upside and might need to consolidate or pullback. You'll find that most uptrends spend the majority of their time between the +1x ATR level and +3x ATR level, and opposite for downtrends, with occasional deeper pullbacks to the 21 day EMA, which is the middle band, or deeper to the 50 day SMA.

They can be useful for judging how extended a breakout is, as if the stock breaks out from a VCP pattern then it will often only just be closing above the +1x ATR level, and hence has room to run in the short term. But if it's breaking out from a more volatile pattern, then can be extended past the +3x ATR level on the first day, and hence increases the risk of failure, or squatting back into the range.

There's are lots of ways to use them, but for me it's mostly about assessing risk and getting a visual guide of how far a stock moves on a typical day, as this can then help inform your stop loss positioning.

Below is the setup I use for them in stockcharts