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.
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.
- 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