As I mentioned before, the USD/CHF passed below the two hundred day moving average (MDMA) last week. As a result, I put in three orders to go short at a pip below last week’s low. Each order risked the same dollar amount, but they each had different stop distances and different position sizes. One position has a stop at the four week high, another has a stop at the ten week high, and the third has a stop at the twenty week high.
I placed the orders with Oanda (which does not include Donchian Channels as an option in their trading platform). The price did go below the low last week and trigger the orders and the above image shows the stops as red lines. The chart there is a “min/max” chart. It doesn’t show candles, it simply shows the highs and lows of each week. One can easily find the four, ten, and twenty week highs and lows on that chart.
So what I am doing is trading three systems in one market. I am trading a four week channel, a ten week channel, and a twenty week channel in USD/CHF.
If you look back at the history in this pair (or any other for that matter) you will see that of those three different channels, there are times wherein the four week channel performs best, times wherein the ten performs best, and times wherein the twenty performs best. If a trader picks any one of those channels in the expectation or hope that he will have chosen the “best” one, he is trading a curve fitted system. A fitted system is simply one that best performs historic price data. The reality is that nobody can predict which system will perform the best and the one we choose if we do so has just as much likelihood to be the worst performer as it does to be the best. To avoid choosing a system that could possibly be the worst performer, we can diversify our position by spreading it over more than one system.
These three positions could be all losers, they could be all winners, nobody knows. I am risking just 26 basis points of my closed account equity on each, 78 basis points total. In other words, if all three were stopped out today, I would lose 0.78 percent of my closed account equity. With that, a sudden 20% move like that of Jan 15 would lose me less than 2% of my account equity. The only thing left to do is to update the stops each week as the channel highs either fall or get taken out.
the advantage using a lower TF for TS is that you secure part of your profit earlier and don’t give back as much profit if price reverses…
and there’s also the disadvantage a reversal can get you out of the trade while a SL with the entry DC might have kept you in the trade…but you can’t have it all
the trades on the 4h charts last on average 6 days…
don’t worry, it didn’t die…at least not for the ones who are really interested in Donchian Channels
we know that trades last a bit longer than with other trading systems
although, i am using the DCs on lower timeframes (1h, 2h and 4h)…so, i get much more entries as Adrian gets for example…but also more false signals…
also, i don’t use a filter as Adrian does, because i don’t want to miss a trend change while it is still on the other side of the filter (e.g. MA), knowing that i will get more losing trades this way…
so, you enter all trades on the same entry but trail stops at the different DCs…
i will try this with 1h, 2h and 4h DCs…you could very likely stop out the smallest TF but run into profits with the other two or at least with the largest TF, unless trend changes completely…
One thing that is very hard for me is not taking profits. So many years used to taking profit and saying dont be greedy. I have a couple trades I took using dochian and they up over 200 pips and its tough trying to hang on to them. Its the whole dont be greedy, so im telling myselfmits not greed its the system.
Is there a point u cut trade short and take profit or do u always let it roll to the end.
i completely understand that…i also used to trade taking profit as soon as possible to avoid giving the profit back…just think that by taking profit you might miss a lot more profit…and at the end the winners outlast the losers with DCs…
wait some time until you see that the system works…then it’s getting easier and the ‘greed’ goes away
This particular trade has one peculiar thing going on but my logic is this:
Usually, when the price moves from above the 200 day moving average to below it, it has to make a new four week low to do so. Many times it also makes a new ten week or even a new twenty week low before it crosses the moving average. So when the price crosses the moving average I trade those channels that it is making new moves in. The ideal would be that it makes a new four week low after crossing the moving average, then later and lower it makes a new ten week low, and then still later and lower it makes a new twenty week low. With that, all the entries and exits would be at different levels and at different times (which is what I prefer).
With this particular trade you will notice that the price made a new four week low before it crossed below the 200 day moving average. Then, it made a new ten week low just after it crossed below the moving average. Thus, normally I would have only taken shorts on those two channels and I would still be waiting for the twenty week low to get taken out to add the short on the twenty week channel. But in this case we have this insanely tall twenty week channel because of that mid January week that is still in the current twenty week channel. It will take another nine weeks for the twenty week low to catch up to the current ten and four week lows (unless those lows go down to meet the current twenty week low first).
If we imagine for a moment that the January 15 mess had not been so violent as to take out a new twenty week low that day we can see that we likely would be putting in a new twenty week low this week. The low for the week twenty weeks ago was above 95.000.
I did not take the shorts below the moving average back in January because the move was so ridiculous I wanted to simply wait and see what would happen. Of course, we went right back above the moving average within 3-4 weeks. Still, the ten week channel is only just now becoming meaningful as it was untouched since January 15 until this week. So we have the ten week channel coming back into significance just as the 200 day moving average is crossed (a purely random coincidence in my opinion).
If you scan through a lot of charts and simply look at situations wherein the twenty week low crosses above the 200 day moving average (or the twenty week high passes below it), you can see that you are dealing with a pretty strong move that is rare. In fact, there has been only five of such situations in the USD/CHF pair since 2000. The most recent was Spring 2012. Before that spring 2011, Summer 2008, Summer 2003, and Holiday Season 2002. All of these were a couple months in duration at the longest. So that should make me hesitant to take the twenty week low short just under the moving average if I don’t actually have it, but in this case I am going to lean toward taking it especially because we have now (today) taken out the twenty week low of Jan 14 (the twenty week low that was run through during the SNB bomb).
So there are my thoughts. I could be wrong, wouldn’t be the first time. But this is the closest thing to a good new move since we started the thread. If we soon get a move above the 200 day moving average in a euro pair, that will be interesting…
You don’t need to google it from an outside source.
MT4 have a readily available stockpile of supplementary indicators available from the code base located within the terminal icon on the taskbar.
Several versions of Donchian Channel (including the standard option with variable inputs) will be available to simply drag & drop onto the chart from there.
I just use SMA. I don’t think one will perform any better than the other because it is more of a filter than a system and while there will be periods wherein the EMA may perform better than the SMA there will also be periods wherein the SMA will perform better than the EMA.
Have u guys come across this, im sure u have , but how do u handle it. You r trading daily TF and for sake of example the pair is trading below 200 MA, but u go check the the 4 week channel on the weekly but its above 200 MA. Can I still short or do u use it as a filter and pass ?
Im trying to get as much good info as possible but unfortunately theres not much if any good content on web
I am only watching the TF in which i put the entry orders…you have to be aware that trading the Donchian Channels you are just following price after breakouts of the channels, so you don’t have to interpret/predict where price will go…you just move your entry orders with the channel and wait until they are triggered and then you trail the SL…that’s it…
You gave me an idea i will start testing next week…
As i like the turtle setting (20 DC for entry and 10 DC for SL), i will set up 4 DCs on the chart…and i want to trade 3 different TFs, so a maximum of 3 trades per pair can be open at the same time…
The combinations of TFs will be 1h-2h-4h, 2h-4h-8h and 3h-6h-12h…i will test them in 3 demos…
As i take always the double of the previous TF my DCs are 80, 40, 20 and 10 (for SL of the smallest TF), all plotted in the smallest of the 3 TFs, so i only need to open 1 chart for all trades…
Entries will be made on the 80, 40 and 20 DCs, and i trail the SLs on the next smaller DC…on 40 for entries on 80, 20 for entries on 40 and 10 for entries on 20…
This way i should be in short, medium and longer term trends…let’s see how it works…
