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Trading using Donchian Channels

  • #21
  • Jul 8, 2011 9:29am Jul 8, 2011 9:29am
Quoting constin
I am trying something different:
Attachment
those channels are pretty good on trending or really high volatility pairs, so I would look to trade those (with the trend obviously).
  • #22
  • Jul 8, 2011 10:40am Jul 8, 2011 10:40am
Donchian channels is worth to study.
  • #23
  • Jul 9, 2011 7:42am Jul 9, 2011 7:42am
To use Donchian Channels properly you should get that other crap off your chart and add a trend filter, eg a couple of moving averages. Donchian channels are based on the turtles method of trading - when price is at the highest level it has been in xxx days you buy, when price is at the lowest level it has been in xxx days you sell. It is very simple but is intended ONLY as a long term breakout/trend following strategy.

Read this, it will give you a better understanding of what donchian channels do and how they were intended to work
https://www.bsp-capital.com/documents/turtlerules.pdf
si hoc legere scis nimium eruditionis habes
  • #24
  • Jul 11, 2011 8:08pm Jul 11, 2011 8:08pm
Lots to learn. I like to call this the Donchian bubble:
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  • #25
  • Jul 11, 2011 8:18pm Jul 11, 2011 8:18pm
100 to 700 period 5 min channels. very strong
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  • #26
  • Jul 11, 2011 8:44pm Jul 11, 2011 8:44pm
actually richard donchian knows and tried to solve a problem in trend-following which is trends occur less often than ranges. maybe 30% like some people say in each TF. (not going to go into the 'trend is within a range and a range is within a trend thing LOL)

so he decided he had to diversify and increase his chances of trading a trending market. he traded many uncorrelated markets along side ccys, commos, financials.

he also had the max 12 units thing which again limits him to the instruments with the strongest trend.

but now most ppl here just trade fx alone and on a short TF. does it affect the efficiency of the system due to the lack of diversification and levels identified with less potential?
  • #27
  • Sep 12, 2011 4:05am Sep 12, 2011 4:05am
Quoting spicymonkey
actually richard donchian knows and tried to solve a problem in trend-following which is trends occur less often than ranges. maybe 30% like some people say in each TF. (not going to go into the 'trend is within a range and a range is within a trend thing LOL)

so he decided he had to diversify and increase his chances of trading a trending market. he traded many uncorrelated markets along side ccys, commos, financials.

he also had the max 12 units thing which again limits him to the instruments with the strongest trend.

but now most ppl here...
I would say yes. But reading your post you have obviously put some time into this and so would be able to answer this yourself.
Gone to a better place
  • #28
  • Sep 12, 2011 11:04pm Sep 12, 2011 11:04pm
Quoting smikester
I would say yes. But reading your post you have obviously put some time into this and so would be able to answer this yourself.
hi smike,

some time but definitely wasn't enough time. i have ZERO programming skills. all i can do is change a little here and there of indicators i managed to scrap off the various FF threads. [ a general thanks to all. ]

as such, by testing manually, i can only see triggers in individual ccys or mkts (indices, commods) and maybe a max of 2 to 3 mkts, for testing the "switching".

and with my incredibly limited skills, there is little information i can glean from crunching data in excel as well. i know i sound lazy by not picking up at least some prgmg skills or brush up my excel.

i also have 40 posts, just like peter crown. but what a world of difference. gold vs crap. LOL
  • #29
  • Sep 13, 2011 11:13am Sep 13, 2011 11:13am
Quoting spicymonkey
actually richard donchian knows and tried to solve a problem in trend-following which is trends occur less often than ranges. maybe 30% like some people say in each TF. (not going to go into the 'trend is within a range and a range is within a trend thing LOL)

so he decided he had to diversify and increase his chances of trading a trending market. he traded many uncorrelated markets along side ccys, commos, financials.

he also had the max 12 units thing which again limits him to the instruments with the strongest trend.

but now most ppl here...
If you wade through the forums you'll eventually hear many opinions about trading being all about "key support and resistance levels". It is quite rare for price to sail straight through a KSRL, nearly always it will bounce a couple of times. A serious breach of a KSPR is also a strong indicator that a new trend may establish.

Richard Donchian managed to provide a prescriptive way of automatically finding KSPR (albeit a very simple one) and you can have some success trading breakouts or fades of the KSPR's that they identify.

But you've also mentioned the key to the kingdom. The reliability of a KSPR (whether you are going to trade the breakout or the fade) is proportional to the timeframe. The bigger the timeframe (eg days not hours) the more reliable the trade. The length of the channel is the same, short donchian numbers provide less reliability than long ones.

For example, trade the 20 day donchian and you have a reasonably good chance of trading a fade or breakout (or both at the same time), but trade the 100 day and you have more chance of success (but far fewer trades). You'd struggle to make money doing the same on a 20 period donchian based upon hour bars (in fact, I would assert that it is probably impossible to on a long-term basis though you'd have some good months).

But to sum up, the Donchian channel is probably one of the best indicators in your toolkit.
  • #30
  • Edited 9:14pm Sep 13, 2011 9:13pm | Edited 9:14pm
Quoting Medran
But you've also mentioned the key to the kingdom. The reliability of a KSPR (whether you are going to trade the breakout or the fade) is proportional to the timeframe. The bigger the timeframe (eg days not hours) the more reliable the trade. The length of the channel is the same, short donchian numbers provide less reliability than long ones.

For example, trade the 20 day donchian and you have a reasonably good chance of trading a fade or breakout (or both at the same time), but trade the 100 day and you have more chance of success (but far...
hi medran,

in my view, SR trading is a very vague thing. most probably due to my lack of skills. but i had a hard time identifying the correct levels to trade. just like BRV's SR trading, strong weak levels, it looks freakishly clear and obvious after the price action. seldom do i get it b4 the fade or break happens.
as precise as a horizontal line or zone can be, it fails to give me a small risk stop. more often than not my small stops are hit, and big stops are meaningless if i need to book a profit based on that. if big stops are what works then there is no edge in SR. but my accuracy nosedive with small stops, n i would nv know if its my fault or the system.
my observations, noobish and rantin.
probably not the best place to be expressing my thots on SR lol
  • #31
  • Sep 14, 2011 6:00am Sep 14, 2011 6:00am
Quoting spicymonkey
hi medran,

in my view, SR trading is a very vague thing. most probably due to my lack of skills. but i had a hard time identifying the correct levels to trade. just like BRV's SR trading, strong weak levels, it looks freakishly clear and obvious after the price action. seldom do i get it b4 the fade or break happens.
as precise as a horizontal line or zone can be, it fails to give me a small risk stop. more often than not my small stops are hit, and big stops are meaningless if i need to book a profit based on that. if big stops are what works...
>> but i had a hard time identifying the correct levels to trade

That's the genius of Donchian who allowed you to quantify SR levels. For example "The EURUSD is now about to challenge the 50 day high" is another way of defining a support level at the max price achieved during the last 50 days of trading... one that it is clear to see on a chart by plotting a 50-day Donchian channel.

>> as precise as a horizontal line or zone can be, it fails to give me a small risk stop.

There are many ways to set a stop. I've found the most reliable are based upon ATR (the average size of the preceeding bars). ATR(20) seems to work most of the time.

You can set stops at any multiple of ATR. A good level is 0.5 ATR away from entry price. With a small ATR multiple you will get a lot of "whipsaws" (small losses), and with a large one a better win/lose ratio but bigger losses when they do happen. Even though it is always tempting to go for large multiples (such as 2XATR) the smaller multiples always work out more profitable in the end. Lots of tiny losses and a few large profits always seems to work better than a few large losses and a few large profits!

Another good (and very common) way to set stop losses for certain instruments is a Donchian stop loss. If you go long the stop loss is the lowest low for n periods before entry. If you do this you will want to have a very short donchian loss setting (typically 2 or 3).

Medran
  • #32
  • Sep 20, 2011 2:52am Sep 20, 2011 2:52am
just want to ask why those charts in the initial posts look so weird.
aren't donchian channels formed by the highs and lows of the previous N periods? how come you have highs that are beyond the confines of the indicator?
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  • #33
  • Aug 29, 2013 7:58pm Aug 29, 2013 7:58pm
Quoting spicymonkey
just want to ask why those charts in the initial posts look so weird. aren't donchian channels formed by the highs and lows of the previous N periods? how come you have highs that are beyond the confines of the indicator?
Looks to is it is based on the CLOSE not the HIGH, that is why it is beyond the lines

It takes a lot for me to IGNORE you, but you can try.
  • #34
  • Last Post: Oct 26, 2017 4:11am Oct 26, 2017 4:11am
any updates on donchian bubble
Success is a Journey Not a Destination....... kind regards ramzam
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