Donchian Channel and other breakout methods

Just use the last one in post 48 above. It's a really neat indicator. I think it's set at 28 periods which is ideal for our purposes. I'm not talking a 1 hour time frame. Where did you get that from?

You might be interested in this post:

http://www.investopedia.com/articles...dschannels.asp

Thanks for this RedLineFred. It gives great food for thought. :-)

Oh wow I wish I found this thread sooner, channeling is king. Add in some breakout patterns, Harmoinc and OBV and you got yourself some amazing stuff. I find trading this way really helps to identify areas of consolidation. Tied in with volume showing the weakness or strength.

Thanks RedLineFred, I had never really studied Kelter Bands but I'm looking at them now

Here's a neat trick you can do with Donchian Channels:

If you take a daily chart and block out our area of interest:



Then go to a monthly chart and insert some Donchian Channels:



You can see I have now blocked out our area of interest for the period 1987 (the year I was born) to 2009, which is over 20 years. Everywhere we see the Donchian channel flat line is an area of support or resistance. For this demonstration I have just marked one, the 1992 low which held for 4 months or so. The price is 118.65. That is where the price is now.

Let's look at the hourly chart now, where the price has revisited this level after more than 5 years below. It was November last year:



We even get an hourly pin bar. The price retraces over 100 pips. So people were watching this level and using it to close longs. Very long term longs, I imagine. Additionally, if you study the hourly chart since then, scalpers and intra day traders have obviously been using the level for buying and selling.

Channeling is a very powerful identification of price consolidation, Using this type of approach on a much lower time frame is able to show these breaks quicker then the higher TF. This is from the market, most of the time(dont have the statistics) going to the higher timeframes channel/S&R. I also add in OBV to have confirmation with VOLUME. Looking for divergence or convergence to show the weakness.

Example 3 min channel. Price made a daily high and retrace. I know alot of traders like the fibos etc to identify those points. I dont care about that, the whole idea is to first find these new areas of consolidation. Sometimes they hold, sometime they dont. Sometime price will hover above or below and break back into the channel. Thats trading no system is perfect. Once letting go of this belief it is much easier to wait for those key turning point or in this case breakouts.

Once the retrace is identified I find Im able to draw the channel. From here watching S&R, I normally assume price will continue to channel and trade it. This is like playing a sport or poker. Waiting for the defender to go for the hit and you deke around him or waiting for the opponent to fold etc. This takes time to understand the market. THats why I also use Breakout Patterns and Harmonic. But the key is identifying the channel with confirmation with OBV.

Once price breaks on the lower time frame, it gets confirmed with the divergence of OBV. Then of course tries to come back to the channel. Previous Support turning into Resistance and then price drops 300 points. Text book channeling.

Nice charts and methods Cogs. Thanks for your input. I shall study what you have been doing.

Guys use the 200 period and make huge pips