Combined Donchian Channels | Trading Strategy (Entry & Exit)

I. Trading Strategy

Developer: Richard D. Donchian. Concept: Trading strategy based on Donchian Channels. Research Goal: Performance of the channel entry and trailing exit. Specification: Table 1. Results: Figure 1-2. Trade Entry: Long Trades: A buy stop is placed one tick above the Donchian Channel (i.e. UpperChannelOne[i − 1]). Short Trades: A sell stop is placed one tick below the Donchian Channel (i.e. LowerChannelOne[i − 1]). Index: i ~ Current Bar. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

Donchian Channel Entry & Trailing Exit (Definitions in Table 1):


Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY
SPECIFICATION PARAMETERS
Auxiliary Variables: UpperChannelOne(Channel#1) is the highest high over a period of Channel#1. LowerChannelOne(Channel#1) is the lowest low over a period of Channel#1.
UpperChannelTwo(Period#2) is the highest high over a period of Period#2. LowerChannelTwo(Period#2) is the lowest low over a period of Period#2.
Period#2 = Channel#1 * Channel#2.
Channel#1 = [5, 200], Step = 5 (bars);
Channel#2 = [5, 100], Step = 5 (% of Channel#1).
Setup: N/A.
Filter: N/A.
Entry: Long Trades: A buy stop is placed one tick above the UpperChannelOne[i − 1].
Short Trades: A sell stop is placed one tick below the LowerChannelOne[i − 1].
Index: i ~ Current Bar.
Exit: Channel Exit: Long Trades: A sell stop is placed one tick below the LowerChannelTwo[i − 1]. Short Trades: A buy stop is placed one tick above the UpperChannelTwo[i − 1]. Index: i ~ Current Bar.
Stop Loss Exit: ATR(ATR_Length) is an Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop]. Stop Loss Exit is used to normalize risk via position sizing.
ATR_Length = 20;
ATR_Stop = 6;
Sensitivity Test: Channel#1 = [5, 200], Step = 5 (bars).
Channel#2 = [5, 100], Step = 5 (% of Channel#1).
Position Sizing: Initial_Capital = $1,000,000
Fixed_Fractional = 1%
Portfolio = 42 US Futures
ATR_Stop = 6 (ATR ~ Average True Range)
ATR_Length = 20
Data: 42 futures markets; 32 years (1980/01/01−2011/12/31).

Table 1 | Specification of Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Donchian Channel Entry & Trailing Exit (Definitions in Table 1):


Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

IV. Rating: Combined Donchian Channels | Trading Strategy

A/B/C/D

Related Entries: Donchian Channel (Entry & Exit 1) | Donchian Channel (Entry & Exit 2) | Donchian’s 20 Guides To Trading Commodities | Dow Theory – Trend (Entry & Exit)
Proprietary Strategies: ALPHA20TM Trading System | Robust Short-Term PatternsTM
Related Topics: (Public) Trading Strategies

Codes: matlab/donchian/2-channels/

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

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