Keltner Channels – 2-Phase Model | Trading Strategy (Setup)

I. Trading Strategy

Developer: Chester W. Keltner. Concept: Trend-following based on Keltner Channels. Research Goal: Performance verification of the 2-phase model (long/short). Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: Close[i − 1] > Buy_Line[i − 1]. Short Trades: Close[i − 1] < Sell_Line[i − 1]. Index: i ~ Current Bar. Trade Entry: Long Trades: A buy at the open is placed after a bullish Setup. Short Trades: A sell at the open is placed after a bearish Setup. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 33 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.

Tested Variables: Look_Back & Range_Multiple (Definitions: Table 1):

Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY	SPECIFICATION	PARAMETERS
Auxiliary Variables:	Typical_Price[i] = (High[i] + Low[i] + Close[i]) / 3 Range[i] = High[i] − Low[i] Index: i ~ Current Bar. MA_Typical_Price(Look_Back) is a simple moving average of Typical_Price over a Look_Back period. MA_Range(Look_Back) is a simple moving average of Range over a Look_Back period. Buy_Line[i] = MA_Typical_Price[i] + MA_Range[i] * Range_Multiple Sell_Line[i] = MA_Typical_Price[i] − MA_Range[i] * Range_Multiple Index: i ~ Current Bar. Default Values: Look_Back = 10 Range_Multiple = 1	Sensitivity Test: Look_Back = [10, 200], Step = 5; Range_Multiple = [0.0, 3.0], Step = 0.1;
Setup:	Long Trades: Close[i − 1] > Buy_Line[i − 1] Short Trades: Close[i − 1] < Sell_Line[i − 1] Index: i ~ Current Bar.
Filter:	N/A
Entry:	Long Trades: A buy at the open is placed after a bullish Setup. Short Trades: A sell at the open is placed after a bearish Setup.
Exit:	Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop]. Reversal:  After Buy_Line (Sell_Line) breakout, we reverse from short (long) to long (short).	ATR_Length = 20; ATR_Stop = 6;
Sensitivity Test:	Look_Back = [10, 200], Step = 5 Range_Multiple = [0.0, 3.0], Step = 0.1
Position Sizing:	Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20
Data:	42 futures markets; 33 years (1980/01/01−2013/05/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Tested Variables: Look_Back & Range_Multiple (Definitions: Table 1):

Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

IV. Rating: Keltner Channels – 2-Phase Model | Trading Strategy

A/B/C/D

Related Entries: Keltner Channels – 3-Phase Model (Setup) | Bollinger Bands – Momentum Model (Setup) | Combined Donchian Channels (Entry & Exit) | Heikin-Ashi Technique (Setup & Exit)
Related Topics: (Public) Trading Strategies

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

Codes: matlab/keltner/1/