How I used Keltner Channels

To avoid Wednesday's selloff

December 19, 2024

*together with Compare Credit

Good morning,

We use the Keltner Channels in the $2,000 Small Account Journey to watch for reversion to the mean.

Keltner Channels use Average True Range (ATR). 

Wednesday, Journey was cash because odds were the QQQ needed to revert to the mean.

The $2,000 Small Account Journey avoided that carnage yesterday.

Here’s how we use Keltner Channels to enter trades.

The easy way to understand ATR is how much it moves daily across the last 14-days.

If NVDA is trading at $500 and has an ATR of $20, our sold strike on a bull put sure be -$480 / +$460 for 30% of the width or a $6 entry.

Let’s look at how the Keltner Channels and ATR helps us structure the width of our spread. 

Again, we’d like to sell a strike 1-2 ATR from the current price. Then the bought strike 2-3 ATR from the current price.

The mean is the dotted line. Top left is the legend. The blue line is +1 / - 1, the red line is +2 / -2 and so on.

Looks like about $10 ATR here.

And we’re above the mean or dotted line.

With the stock price at $274, the trade would be -$265 / +$255 putting us 2 ATR away from max loss.

Do you see how I found that? 

To simplify things I always keep the ATR on my 10-day EMA chart. $10.92 ATR on a 14-day lookback. See?

Reversion to the mean involves retracing back to the long-term average. It assumes a stock that strays too far from the long-term average will again return.

If we see a stock trading at +4 ATR we want to be careful because it’s going to revert to the mean soon or drop 4 ATR. 

Again, QQQ was at +3 ATR into the interest-rate decision Wednesday. This meant odds of a pullback were high.

Today I want to use the Keltner Channels to enter bull puts (short put vertical spread) which are neutral to bullish trades — but only on earnings winners with strong guidance like NFLX etc…

See why NFLX is likely to head slightly lower, sideways or higher? It’s come back to its mean i.e. mean reversion or the dotted line

Or if it’s at -3 ATR we want to be careful because it’s going to revert to the mean or rise +3 ATR.

But remember, because a stock is oversold or overbought, doesn't mean it’ll revert.

This is just some of what I teach in the $2,000 Small Account Journey.

And it’s helped me grow the current challenge from $2,000 to just shy of $60,000 in about a year.

Results not typical. Trading is hard. Nothing is guaranteed.

I can teach you how this works.

I even send the trade alerts in real-time to members’ phones.

I want to point out that I cannot speak for my members’ performance, as results may not be typical and trading is HARD. And I cannot guarantee you will make money. But what I can guarantee is that I will work my BUTT OFF to teach you WHY I trade WHAT I trade.

I hope you take advantage of my holiday pricing.

Sincerely,

Jason Bond

*together with Compare Credit

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