Donchian Channel Trading

[PoPip]

This thread peaked my interest enough to make an account, after a month or so of lurking these boards. I decided to start studying the Forex market and strategies about a month ago and currently have a few demo accounts with various strategies.

In addition to pure price action trading on higher timeframes, as well as a 5 - 15 min account, I’ve decided to test the waters with Donchian Channel trading.

I’m using the 10 - 20 strategy on 4H charts and using a 200 MA to determine trends. As I’m skeptical of any system that can be fully automated, I’m using my own discretion to enter trades based on what I think “looks” like a higher-probability entry. Of course I imagine my judgement won’t be very good at the start, and I hope to hone this over time.

I would love for those of you who have been trading this strategy for a while to continue posting updates on your trades (both good and bad) so we can all learn from each other.

Best of luck in the markets!

[3xfx]

Right now doch has me in a pretty good drawdown. Im trading off daily with 20 per D and my entries are .20 % of ATR with stops at multiple of ATR.
Just staying the coures and being patient.;);)

[_bob]

Gday DC bros. G’day PoPip, welcome to the thread.

After a couple of weeks of BP’s + Chrome = not happening things are working again andt ime for an update. FXbook has played up this week and has not updated so here’s a statement from the demo account.

We’ve been goeing 9 weeks now so time for some conclusions. It’s fair to say the bots have been running just as back testing has suggested. Although the past couple of weeks I’ve been manually exiting trades based on time of day off the 5min charts and trailing equity stops. So in my humble opinion trading DC breaks on both the 1hr and 4hr charts as a day/swing trading strategy can be highly profitable.

But lets compare it to my other strategy, box breaks on the 70 tick charts. My true love.

Strategy
Trades
Won
Lost
% Win
Pips Won
$ Amount
Pips lost
$ Amount
Comm
Swap
%Cost of Trades
Nett Profit
% Gain
Draw
Down

DC Breaks
387
169
219
43
6130
16114
5194
13842
693
69
4.5
2272
22.7
13.4

Box Breaks
45
27
19
60
270
3537
171
2240.1
208
0
5.9
1089
25.7
4.0

Man trading tick charts just kick ass. The strategy is pretty simple. One pair, one trade, once a day. Compare that to how hard the bots are working. 860% harder in fact. Draw down is tripled and return is less. Man that’s a lot of hard work for nothing at the end of the day. I 'm a lazy trader by nature. Don’t like hard work. And monitoring these bots when trades are on has been hard work. Must work smarter

First I’m going to look at markets. This is a critical component of any strategy. Indeed it’s the first section covered in the turtles strategy. With my box break I trade solely the EURUSD pair for it’s liquidity. There’s no reason DC breaks should be any different. Remembering the goal is to preserve capital. I’m running only 4% draw down in the past 9 weeks. Back test showed the EURUSD and USDJPY ran the lowest draw downs. And if you analysis the data on FXbook, these are the only two pairs to have returned a profit overall. So even though history suggests that many pairs may be suitable for trading DC’s as a basket one over-trades and therefor faces excessive draw down with no value return gained. So I’ll start to limit my studies to these two pairs.

Next my personal favorite filter. Time of day. The market is not there for us speculators to trade off. It exist because organizations need to exchange and protect capital. Why, who and in the quantities it occurs in blows my mind and I do not and need not understand it except for the fact it has to happen. Because it has to happen this business process leaves evidences of its actions. Understanding what is going on at certain times of the day is critical in our understanding of the markets. Trading hourly charts what we are in essence doing is day trading break-outs. Break-outs have different meanings at different time of days.

True break-outs during Asian session open indicates a continuation of a trend. During European/London session open we are looking at currency re-evaluation and at the end of the European/London it’s about book balancing. Also true breaks never retrace. An important factor in managing a trade. Now we don’t know the moment a break occurs if it’s a true break or a Fakey. We just have to be on it. If it is a fakey then we need be able to identify it and to get out of the trade real quick. Remember our goal is to preserve capital. We’re searching for true breaks and true breaks have a specific price action.

So using the custom analysis on FXBook, If we only traded the EURUSD and USDJPY. And we only traded the hours (GMT) 3,4 and 5 during the Asian session, 8 and 9 European /London open and 11, 13,16 and 17 in the afternoon we can expand our comparison chart to look like this

Strategy
Trades
Won
Lost
% Win
Pips Won
$ Amount
Pips lost
$ Amount
Comm
Swap
%Cost of Trades
Nett Profit
% Gain
Draw
Down

DC Breaks
387
169
219
43
6130
16114
5194
13842
693
69
4.5
2272
22.7
13.4

Box Breaks
45
27
19
60
270
3537
171
2240.1
208
0
5.9
1089
25.7
4.0

EURUSD USDJPY
47
23
24
49
1030
3696
288
858
114
4
3.2
2720
27.2
3.0

Now those stats are far more inviting. But it is all theory at this point. And the markets don’t do theory. So I’ll go away and do some work behind the scene. See what I can come up with. But all this work only applies to me and how I trade. Those trading Daily or Weekly charts well it’s just a nice read. But that’s all good. How each of us extracts profit out of the market is determined by our own needs and personality.

Best of luck in the markets next week all

Bob

[_bob]

Now I know there’s a few senior members lurking around this thread. Members who have inspired my journey. Keen to hear your thoughts.

And for something completely different…

[forexdave]

Am new to FX, and the discussion on Donchian has fascinated me for the potential it offers. I’m still digesting all the points (and attachments) in this thread, but want to tip my hats off to all who have posted…Mike, Adrian, Bob, 3xfx and more. Great job at giving a friendly and helpful vibe to this thread.

I have had a go at DC trading this week, and sadly have not had much success. In fact, most of the trades I’ve initiated are in the red…although most are still in play. Want to share my observations and questions, and hopefully get some of your insights on where I can improve.

For my strategy, I look at mostly the daily charts for breakout of the 20 DC, and set my stop on the opposite line – I must admit for the stops, I sometimes would use either the opposite 10 DC line or the 20 DC line. I’ve also decided to be more on the conservative side, and open trades only if it is in the same direction as the 200 SMA.

What I’ve observed is that in most cases, as I enter on a breakout, the counters would often reverse back (case in point there was a breakout on GBP/USD from the upper DC line a few days ago, but it has stalled so far). I did have one where it continued along the trend (i.e. EUR/AUD) but it seemed to be the exception than the norm. I’m reading some of your posts that more patience is needed, so perhaps just want a feel on whether have I got the strategy correct so far? Is this “initial set back” something you’ve also experienced on some of your big winners?

Also, just want to get some clarification on your entry. Do you enter as soon as the DC channel line is breached (i.e. 1 pip beyond the channel line) or do you put it a few distance away to guard against false breakouts? Or, I’ve also seen some strategies (not necessarily Donchian), where they would wait for the “breakout candle” to close, and trade only on the onset of the next candle open. Wonder how you guys do it?

In any case, am still trudging on with this strategy, and will continue to look at ways to tweak it for the better. Thanks in advance for all your insights.

[3xfx]

Am new to FX, and the discussion on Donchian has fascinated me for the potential it offers. I’m still digesting all the points (and attachments) in this thread, but want to tip my hats off to all who have posted…Mike, Adrian, Bob, 3xfx and more. Great job at giving a friendly and helpful vibe to this thread.

I have had a go at DC trading this week, and sadly have not had much success. In fact, most of the trades I’ve initiated are in the red…although most are still in play. Want to share my observations and questions, and hopefully get some of your insights on where I can improve.

For my strategy, I look at mostly the daily charts for breakout of the 20 DC, and set my stop on the opposite line – I must admit for the stops, I sometimes would use either the opposite 10 DC line or the 20 DC line. I’ve also decided to be more on the conservative side, and open trades only if it is in the same direction as the 200 SMA.

What I’ve observed is that in most cases, as I enter on a breakout, the counters would often reverse back (case in point there was a breakout on GBP/USD from the upper DC line a few days ago, but it has stalled so far). I did have one where it continued along the trend (i.e. EUR/AUD) but it seemed to be the exception than the norm. I’m reading some of your posts that more patience is needed, so perhaps just want a feel on whether have I got the strategy correct so far? Is this “initial set back” something you’ve also experienced on some of your big winners?

Also, just want to get some clarification on your entry. Do you enter as soon as the DC channel line is breached (i.e. 1 pip beyond the channel line) or do you put it a few distance away to guard against false breakouts? Or, I’ve also seen some strategies (not necessarily Donchian), where they would wait for the “breakout candle” to close, and trade only on the onset of the next candle open. Wonder how you guys do it?

In any case, am still trudging on with this strategy, and will continue to look at ways to tweak it for the better. Thanks in advance for all your insights.

I myself dont enter at the break of channel. What I do is enter on A % of ATR for a extra little filter. I may lose a few pips but it also keeps me out of some bad trades. Its all dependent on the trader.

[kingalpha]

In any case, am still trudging on with this strategy, and will continue to look at ways to tweak it for the better. Thanks in advance for all your insights.

Dave,

DC trading is extremely difficult to handle for us humans psychologically because it demands that you take more losers than winners and you sit in the negative the majority of the time. No doubt you’ll get whipsawed around by false breakouts and whatnot. However, if you are willing to take every trade and do it consistently over [B]many years[/B], the mathematical law of large numbers will be your edge. Big trends don’t come every week or even months but they will come. Those ‘freak of nature’ trends will pay for all of your small losses and put you in profits.

One tip that I can share with you is don’t focus on your profits. Instead, turn it around and focus on how much you are losing. For me, if a trade is closed out for a loss less than the original risk amount then it is a ‘winning’ trade because it means that I can withstand more losers. Survival is the no. 1 priority for DC traders.

On my live account, after 22 trades, I have 3 winners, 19 losers with the longest losing streak of 10 trades. I’m down -8.9% right now and I see it as a huge success. How many strategies can survive so well in those conditions? How many traders can proudly say that they are still pulling the trigger after 10 losers in a row from their first 22 trades?

It’s all about perspective

[forexdave]

I myself dont enter at the break of channel. What I do is enter on A % of ATR for a extra little filter. I may lose a few pips but it also keeps me out of some bad trades. Its all dependent on the trader.

Thanks. I agree with you, based on my experiences this week. I am not familiar on how to use ATR yet, how useful has that been as a trading strategy for you?

I am also thinking of placing buy or sell stops ahead of time…nothing fancy, just place them like a few pips beyond the DC line. Just to make sure I don’t get missed opportunities…there was a big move on EUR/CAD last night and I missed that. Not too disappointed though, since that did confirm that the strategy does work.

[forexdave]

Dave,

DC trading is extremely difficult to handle for us humans psychologically because it demands that you take more losers than winners and you sit in the negative the majority of the time. No doubt you’ll get whipsawed around by false breakouts and whatnot. However, if you are willing to take every trade and do it consistently over [B]many years[/B], the mathematical law of large numbers will be your edge. Big trends don’t come every week or even months but they will come. Those ‘freak of nature’ trends will pay for all of your small losses and put you in profits.

One tip that I can share with you is don’t focus on your profits. Instead, turn it around and focus on how much you are losing. For me, if a trade is closed out for a loss less than the original risk amount then it is a ‘winning’ trade because it means that I can withstand more losers. Survival is the no. 1 priority for DC traders.

On my live account, after 22 trades, I have 3 winners, 19 losers with the longest losing streak of 10 trades. I’m down -8.9% right now and I see it as a huge success. How many strategies can survive so well in those conditions? How many traders can proudly say that they are still pulling the trigger after 10 losers in a row from their first 22 trades?

It’s all about perspective

Thanks KingAlpha, I’m greatly encouraged! I will keep that in mind in times when I seem to be getting more than my fair share of losers. I think someone did say it’s not in the number of wins/losses, but in how much/how little you win/lose with each trade…something to that effect.

Anyway, today seems like a good day for trend followers. Most of my positions have rebounded. I know I shouldn’t get overconfident, but can’t help but feel a bit relieved. And yes I agree, my main goal at the moment is really to develop a strategy that I’ll be confident in deploying consistently over years.

Some more questions bouncing in my head…when and where to adjust the SL once you are in profit? when to start trailing stops? when to add more positions to increase a winning position? and more… I don’t have the answers to these yet but in a way, it’s what makes this interesting.

Have a great weekend everyone.

[3xfx]

@forexdave

Thanks KingAlpha, I’m greatly encouraged! I will keep that in mind in times when I seem to be getting more than my fair share of losers. I think someone did say it’s not in the number of wins/losses, but in how much/how little you win/lose with each trade…something to that effect.

Anyway, today seems like a good day for trend followers. Most of my positions have rebounded. I know I shouldn’t get overconfident, but can’t help but feel a bit relieved. And yes I agree, my main goal at the moment is really to develop a strategy that I’ll be confident in deploying consistently over years.

Some more questions bouncing in my head…when and where to adjust the SL once you are in profit? when to start trailing stops? when to add more positions to increase a winning position? and more… I don’t have the answers to these yet but in a way, it’s what makes this interesting.

Have a great weekend everyone.

Read this over the weekend if u havent already. I venture to guess most of us in this thread have read it more than once. U can use these principles and tweek to your liking. It will help u a lot to understand of the answers u get and keep asking questions and it will all come into place. THE COMPLETE TURTLE TRADER - MICHAEL W COVEL.pdf (2.28 MB)

[Forexmike]

Am new to FX, and the discussion on Donchian has fascinated me for the potential it offers. I’m still digesting all the points (and attachments) in this thread, but want to tip my hats off to all who have posted…Mike, Adrian, Bob, 3xfx and more. Great job at giving a friendly and helpful vibe to this thread.

Hi dave
welcome to this thread and to DC trading!

I have had a go at DC trading this week, and sadly have not had much success. In fact, most of the trades I’ve initiated are in the red…although most are still in play. Want to share my observations and questions, and hopefully get some of your insights on where I can improve

Well, that’s how DC trading looks most of the time…as others already pointed out, the winning% is quite low (30-40%), that’s the psychologically challenging part…over time the winners are bigger than your losers and should create a profit…

For my strategy, I look at mostly the daily charts for breakout of the 20 DC, and set my stop on the opposite line – I must admit for the stops, I sometimes would use either the opposite 10 DC line or the 20 DC line. I’ve also decided to be more on the conservative side, and open trades only if it is in the same direction as the 200 SMA.

that’s more or less how i also trade the DCs…

Also, just want to get some clarification on your entry. Do you enter as soon as the DC channel line is breached (i.e. 1 pip beyond the channel line) or do you put it a few distance away to guard against false breakouts? Or, I’ve also seen some strategies (not necessarily Donchian), where they would wait for the “breakout candle” to close, and trade only on the onset of the next candle open. Wonder how you guys do it?

I trail my entry orders exactly at the channels…as soon as price breaks the channel i am in the trade…

Some more questions bouncing in my head…when and where to adjust the SL once you are in profit? when to start trailing stops? when to add more positions to increase a winning position? and more… I don’t have the answers to these yet but in a way, it’s what makes this interesting.

I put my SL on the DC 10 and keep trailing it on this DC from the start of the trade until i get stopped out…

I am not adding to positions anymore…bob and adrian explained in earlier posts that it doesn’t make sense for speculators…

welcome again…feel free to ask any question at anytime, we all keep on learning…

Mike

[3xfx]

I ahve results of h1 trades since 8/3 to present. I tried to make pic bigger I hope u can see them.
I also will have h4 and daily up soon. Any questions/comments let me know. John
The last image should be the variables I used.

[3xfx]

The last shot is not for this test its 1 for another I will be posting. I tried to get rid of it but cant.

[fxstrategist]

Looks like a good longer term system. Must keep following the post to see the results.

[_bob]

G’day channel friends.

Well, it’s time to end the demo testing and put some money on the line. Opened up a new account and funded with hopefully sufficient funds to met MM requirements but not that much that I can’t afford to loss it.

As indicated in a previous post I have chosen only to trade two pairs, the EURUSD and USDJPY on the 1HR chart. I have also tweaked the bot. The rules are quite simple now. If no order exists, stop orders will be placed at the upper and lower DC level. Stop Loss is placed at 2 times the ATR and I’m going with 3% risk. No Take Profit. Orders will be closed out by trailing stop set at 2 times the ATR. The trailing stop is active immediately after the order is filled. This is a day trading strategy so all trades will be closed out at 00 Hrs GMT.

The final filter is time. The bots have four trading sessions preset to execute trades in. Natural the Asian, European, London and New York.

I’m using my broker IC Markets for this live forward test. And instead of FXBook I’m using the resources provided by FX Blue - Home page. One app I’m looking forward to is their news app. The only manual intervention I plan doing will be around news events.

The link to the statement page is FX Blue - Statement for forexbob

So that’s about all for now. Lets hope the gods release many pips this week.

Bob

[FXAlTareeq]

You didn’t mention (as far as I can tell) your entry points and whether you’re going long or short on those pairs. Correct me if I’m wrong and if not please don’t your entry point.

Thanks,
FXAlTareeq

[_bob]

You did mention (as far as I can tell) your entry points and whether you’re going long or short on those pairs. Correct me if I’m wrong and if not please don’t your entry point.

Thanks,
FXAlTareeq

A Buy Stop order is placed on the upper DC level and a Sell Stop order is placed at the lower DC level. These orders are good for one hour then get cancelled, variables recalculated and a new stop orders placed. This process repeats until either one order gets filled which cancels the other or the trading session ends.

Hope that helps bro

Bob

[Alanlim3]

A Buy Stop order is placed on the upper DC level and a Sell Stop order is placed at the lower DC level. These orders are good for one hour then get cancelled, variables recalculated and a new stop orders placed. This process repeats until either one order gets filled which cancels the other or the trading session ends.

Hope that helps bro

Bob

Hi i hv a question regarding tp n sl. Hope u able to guide me. Hw many tp n sl should i put if im using a m1 time frame? And how much different should i put inbetween the tp n sl? Example tp 4pips n sl 7pips or 4 pips n 10 pips? May i kn which is the best? ??

[kingalpha]

The final filter is time. The bots have four trading sessions preset to execute trades in. Natural the Asian, European, London and New York.

Bob,

I have read that day trading is more profitable in the first few hours of a session open.What part of the session is your bot trading? Have you seen evidence of this during your forward test?

All the best with your live account!

[_bob]

Hi i hv a question regarding tp n sl. Hope u able to guide me. Hw many tp n sl should i put if im using a m1 time frame? And how much different should i put inbetween the tp n sl? Example tp 4pips n sl 7pips or 4 pips n 10 pips? May i kn which is the best? ??

Argh…Now this is where you’ll have to do the hard work yourself my friend. Nobody else is you and nobody else understands what it is you do and how you extract pips from the market for a profit. It takes months, years to develop a system. This DC strategy is in fact a project of mine that’s been in development for 2+ years and you can see the work I’ve put in behind the scenes.

But I will say this. Give up the minute charts. Try instead tick charts. Remember the same price action creates every chart. If you are going to study fast moving charts then you can’t let a variable such as tick volume distort candles (the presumption is your trading candles, not a line or renko of point n figure or or or). And your 4 pip stop loss suddenly become 2 pips while your 7 pip tp is now infact 9 pips the moment you place your trade if the pair has a 2 pip spread. SL and TP are set against the price you enter into a position not the price you’ll exit from it. A concept few understand down at this level.