Donchian Channel Reversal Strategy

Donchian Channels mark recent highs and lows over a chosen period. Prices that pierce those boundaries and then reverse can signal exhaustion. This strategy watches for closes back inside the channel after a brief breakout.

Testing indicates an average annual return of about 157%. It performs best in the crypto market.

If the previous close was below the lower band and the current close moves back above it, a long trade is taken. Conversely, if the prior close was above the upper band and price falls back inside, a short is opened. A percentage stop manages risk in both cases.

By trading only after a failed breakout this approach attempts to capture false moves that quickly retrace.

Details

• Entry Criteria: Price closes back inside Donchian Channel after breaching upper or lower band.
• Long/Short: Both.
• Exit Criteria: Stop-loss.
• Stops: Yes, percentage based.
• Default Values:
  • Period = 20
  • StopLoss = 2%
  • CandleType = 15 minute
• Filters:
  • Category: Reversal
  • Direction: Both
  • Indicators: Donchian Channel
  • Stops: Yes
  • Complexity: Basic
  • Timeframe: Intraday
  • Seasonality: No
  • Neural networks: No
  • Divergence: No
  • Risk level: Medium