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