Keltner Channel Mean Reversion

Entry Logic

• Entry trigger: Price reaches the upper or lower band of the Keltner Channel.
• Confirmation: A reversal candle pattern forms at the band.
• Timeframe: 5-minute chart.
• Location context: The market is in a range-bound condition.
• Market condition: A ranging or choppy market.

Exit Logic

• Profit target: The 20-period EMA (the middle line of the channel).
• Scaling out: Not recommended.
• Trailing stop: Not applicable.
• Signal failure: Exit if the price breaks out of the channel.
• Opposite signal: Exit on a signal at the other band.
• Time expiration: Exit if the trade is not profitable within 30 minutes.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Just outside the Keltner Channel.
• Soft stop: A close outside the channel.
• Max dollar loss: $75 per trade.
• Max percent loss: 0.75% of account.
• Structural stop: Not applicable.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 4 losing trades.
• Weekly limit: 4% drawdown.
• Max drawdown: 12%.
• R:R requirement: Minimum 1:1.

Position Sizing Model

• Sizing approach: Fixed fractional (0.5% of account).
• Volatility adjustment: None.
• Conviction sizing: None.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions: Only trade in range-bound markets.
• Setups: Only take reversals at the Keltner Channel bands.
• Instruments: Any liquid instrument.
• Time restrictions: None.
• Chop/news avoidance: Avoid trading around major news.

Context Framework

• Trend direction: The market is directionless.
• VWAP relationship: Price is oscillating around VWAP.
• MA relationship: The 20-period EMA is flat.
• Range location: The trade is taken at the extremes of the range.
• Higher TF alignment: The higher timeframe chart should also show a range-bound market.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not recommended.
• Add size: Not recommended.
• Fast vs slow moves: This is a short-term mean reversion trade.

Time Rules

• Optimal window: Any time during a range-bound market.
• Times to avoid: Trending markets.
• Session notes: Works well in all sessions.

Setup Classification

• A+ setup: A perfect reversal at the band with a strong confirmation candle.
• A setup: A decent reversal with a good confirmation candle.
• B setup: A weak reversal.
• C setup: Avoid.

Market Selection Criteria

• Instruments: Any liquid instrument.
• Volume: Moderate.
• Volatility: Low to moderate.

Statistical Edge Metrics

• Win rate: 65%.
• Avg win: 1R.
• Avg loss: 1R.
• Profit factor: 1.85.
• Expectancy: 0.85R.

Failure Conditions

• The strategy fails when the market starts to trend.
• Avoid taking trades if the Keltner Channel is expanding.

Psychological Rules

• Be disciplined and take profits at the 20-period EMA.
• Do not try to catch a bigger move.

Advanced Components

• Regime detection: Use the ADX to confirm a range-bound market.
• Filters: Only take trades if the ADX is below 20.
• Correlation: Be aware of market correlations.
• MTF alignment: Check the higher timeframe chart for confirmation.

Location

• Strongest: In a choppy, range-bound market.
• Weakest: In a strong, trending market.