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Technical Analysis

Keltner Channels

Here's the Keltner Channel computer code as available in the Public Domain:

INPUTS : PRICE (CLOSE) ,
LENGTH (9) ,
CONST (2) ;
VARS : CENTER (0) ,
UPPER (0) ,
LOWER (0) ,
AVERANGE (0) ;
CENTER=(CENTER * (LENGTH - 1) + PRICE) / LENGTH;
AVERANGE=( AVERANGE * (LENGTH - 1 ) + HIGH-LOW) / LENGTH;
UPPER=CENTER + AVERANGE * CONST;
LOWER=CENTER - AVERANGE * CONST;
IF CURRENTBAR > 25 THEN BEGIN
PLOT 1 ( UPPER, "TOP" ) ;
PLOT 2 ( CENTER, "CENTER");
PLOT3 ( LOWER, "BOTTOM" );
END;

How "Inverse Charts" Overcome Bullish Bias

I am a full-time S&P daytrader and would like to share some simple formulas that help me with bear markets. I am a optimistic person and have a tendency to always see markets as rising.

This causes me to bottom pick during the early phase of a significant sell-off, and occasionally to enter short trades later than I should. To counteract this tendency of always seeing the market as wanting to rise, I look at an inverse chart whenever there is a sell-off.

By an inverse chart, I mean one plotted upside down, with the highest prices on the bottom and the lowest on top. I have enclosed the TradeStation formulas that I use to plot the inverse of a bar chart, Bollinger bands, and a 17-bar exponential moving average. Incidentally, the 17-bar exponential moving average is absolutely identical to the middle line in a Keltner 9-bar channel. The Bollinger bands did not print, but they show on my computer.

I personally use an inverse candlestick chart instead of a simple bar chart, but there are some problems with the way TradeStation plots it, so I am not providing its formula. One problem with the inverse chart is that there is no price grid along the right margin (TradeStation just plots a series of 0's). When I look at the S&P 500 5-minute bar chart of 12/14/, a day when the market made all time highs just after the open, I have a bias that makes me see the market as trying to form a base from 12:00 p.m. est to 2:00 p.m. However, when I look at the same price action on an inverse chart, I see that same area as a continuation pattern in the middle of a sharp rally (the rally is really a sharp sell-off, since this chart is the inverse of the true prices).

This makes it easier for me to short, especially in a very strong market that just hit all-time highs. I know it's a crutch and I know I should be sufficiently in control of my biases to be able to see a clear bear trend. However, I find this helpful in dealing with my bullish bias, and other readers may as well.

To plot the chart in TradeStation, create a new window with a multi-data chart. Choose SP H5 as the ticker for the first and only data (i.e., data 1). Have it plotted in subgraph "none," since you don't want to see the normal, right-side-up chart. Then select your indicators-the only one needed is the inverse bar indicator.

I also select the inverse Bollinger Bands and inverse moving average. I plot all three in subgraph one. For the "bar type," I select "left tick" for the open, "right tick" for the close, "bar high" for the high and "bar low" for the low. You can change the style of the inverse bar chart to obtain a width of bar that is appropriate for you. I use "very thin" width for the open, close, high and low.