Donchian Channel Strategy Idea

13 Jan 2022

This strategy idea is a variation of the "Donchian Channel" trading strategy. It is built with a highest-high band, a lowest-low band, and a baseline which is average the highest-high and the lowest-low bands. This strategy is very useful in trending instruments on 1W and 1D timeframes. This is the implementation used in the QuantCT app.

You can set the operation mode to be Long/Short or long-only.
You also can set a fixed stop-loss or ignore it so that the strategy acts solely based on entry and exit signals.

Trade Idea

• When the close price breaks up the previous highest-high, it is a long signal, the market is considered rising (bullish), and the plotted indicator becomes green. Long positions are held until the close price crosses under the baseline.
  
• When the close price breaks down the previous lowest-low, it is a short signal, the market is considered falling (bearish), and the plotted indicator becomes red. Short positions are held until the close price crosses above the baseline.
  
• Otherwise, if we have no position in the market, the market is considered ranging, and the plotted indicator becomes orange.
  

Entry/Exit rules

• Enter LONG if the close price breaks up the previous highest-high (i.e. when the plotted indicator becomes green).
  
• Exit LONG if the close price crosses under the baseline (i.e. when the plotted indicator becomes orange).
  
• Enter SHORT if the close price breaks down the previous lowest-low (i.e. when the plotted indicator becomes red).
  
• Exit SHORT if the close price crosses above the baseline (i.e. when the plotted indicator becomes orange).
  

CAUTION

• It's just a bare trading idea - a profitable one. However, you can enhance this idea and turn it into a full trading strategy with enhanced risk/money management and optimizing it, and you ABSOLUTELY should do this!
  
• DON'T insist on using Long/Short mode on all instruments! This strategy performs much better in Long-Only mode on many (NOT All) trending instruments (Like BTC, ETH, etc.).