Similar to Donchian Band, Keltner Band is another promising indicator to determine trend breakouts accurately. And experienced traders might very well know that catching accurate trend breakouts is as good a finding a fortune. Keltner band calculates the price range based on ATR (average true range), which is different from standard deviation calculation that Bollinger band uses. In this post, we would understand Keltner band calculation steps and explore a trading system based on it. This trading system is backtested on NSE Nifty for past 18 years and results are decent enough.

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Keltner Band Calculation Steps

Keltner Band is named after Chester W. Keltner (1909–1998) who described it in his 1960 book How To Make Money in Commodities.

The band can be visualized a central moving average line enveloped by an upper and lower band. These bands are calculated based on average true range(ATR) of the price.

Below is the standard calculation steps for Keltner band.

Middle line = 20 period moving average

Keltner Upper Band = Middle line + Multiplier * ATR(Periods)

Keltner Lower Band = Middle line – Multiplier * ATR(Periods)

The default value of multiplier is 2, and periods is 10.

All the constants used in the calculation steps can be adjusted based on the security and timeframe you are trading.

Keltner Band Trading System – AFL Overview

Parameter	Value
Preferred Time-frame	Daily
Indicators Used	ATR, Bollinger Bands
Buy Condition	High value of candle crosses above Keltner upper band
Short Condition	Low value of candle crosses below Keltner lower band
Sell Condition	Low value of candle crosses below Keltner middle band
Cover Condition	High value of candle crosses above Keltner middle band
Stop Loss	No defined SL
Targets	No defined target
Position Size	150 (fixed)
Initial Equity	200000
Brokerage	100 per order
Margin	10%

Keltner Band Trading System – AFL Code

//------------------------------------------------------
//
//  Formula Name:    Keltner  Channel trading System
//  Author/Uploader: Trading Tuitions
//  E-mail:          support@tradingtuitions.com
//  Website:         www.tradingtuitions.com
//------------------------------------------------------

_SECTION_BEGIN("Keltner Channel trading System");

SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} – {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", O, H, L, C, SelectedValue( ROC( C, 1 ) ) ));

//Initial Parameters
SetTradeDelays( 0,0,0, 0 );
SetOption( "InitialEquity", 200000);
SetOption("FuturesMode" ,True);
SetOption("MinShares",1);
SetOption("CommissionMode",2);
SetOption("CommissionAmount",50);
SetOption("AccountMargin",10);
SetOption("RefreshWhenCompleted",True);
SetPositionSize(150,spsShares);
SetOption( "AllowPositionShrinking", True );

Plot( Close, "Price", colorWhite, styleCandle );

//Keltner Band Code
KMid = MA (Close, 20);	//Middle Line
ATRPeriod = 10; 		//ATR Period
KFactor = 2;			//Multiplier
KValue = ATR(ATRPeriod) * KFactor; 
KTop = KMid + KValue;	//Upper Band
KBottom = KMid - KValue;	//Lower Ban

 
printf("\nKTop : " + KTop );  
printf("\nKBottom : " + KBottom );  
printf("\nKMid : " + KMid );  

Plot(KTop,"KTop",colorBlue,styleLine);
Plot(KMid,"KMid",colorGreen,styleLine);
Plot(KBottom,"KBottom",colorRed,styleLine);


Buy=Cross(High,KTop);
Short=Cross(KBottom,Low);
Sell=Cross(KMid,Low);
Cover=Cross(High,KMid);

BuyPrice=KTop;
SellPrice=KMid;
ShortPrice=KBottom;
CoverPrice=KMid;

Buy = ExRem(Buy,Sell);
Sell = ExRem(Sell,Buy);
Short=ExRem(Short,Cover);
Cover=ExRem(Cover,Short);


printf("\nBuy : " + Buy );  
printf("\nSell : " + Sell );  
printf("\nShort : " + Short );  
printf("\nCover : " + Cover );  

/* Plot Buy and Sell Signal Arrows */
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorGreen, 0, L, Offset=-25);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorLime, 0,L, Offset=-35);
PlotShapes(IIf(Buy, shapeUpArrow, shapeNone),colorWhite, 0,L, Offset=-30);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorRed, 0, H, Offset=25);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorOrange, 0,H, Offset=35);
PlotShapes(IIf(Short, shapeDownArrow, shapeNone),colorWhite, 0,H, Offset=-30);
PlotShapes(IIf(Sell, shapeStar, shapeNone),colorGold, 0, L, Offset=-15);
PlotShapes(IIf(Cover, shapeStar, shapeNone),colorGold, 0,L, Offset=-15);


_SECTION_END();

AFL Screenshot

Below is the screenshot of the Keltner Band AFL chart from Amibroker

Also Read: Intraday trend following strategy: MACD and Bollinger Bands

Keltner Band Trading System- Backtest Report

The performance of this system may not be as impressive as Donchian band trading system, but still it’s a stable system and gives very accurate signals. Try it out on different instruments

Parameter	Value
	Nifty
Initial Capital	200000
Final Capital	998020.42
Scrip Name	NSE Nifty
Backtest Period	09-Feb-2000 to 18-May-2018
Timeframe	Daily
Net Profit %	399.01%
Annual Return %	9.14%
Number of Trades	198
Winning Trade %	42.42%
Average holding Period	14.74 periods
Max consecutive losses	4
Max system % drawdown	-29.49%
Max Trade % drawdown	-87.55%

Download the detailed backtest report here.

Equity Curve

The equity curve is consistent and almost linear

Profit Table

Additional Amibroker settings for backtesting

Goto Symbol–>Information, and specify the lot size and margin requirement. The below screenshot shows lot size of 75 and margin requirement of 10% for NSE Nifty:

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