Does Donchian Channels trading strategy even work?
Can this popular strategy make you money in trading?
Well, I took 100 trades with Donchian Channels Indicator to find just that.
In this video, you will learn about the Donchian Channels trading strategy with its win rate,
so we all can see if this indicator is good or not.
Since the Bollinger Bands trading strategy had the second highest win rate in this series,
and since the Donchian Channel indicator is very similar to the bollinger bands, it will
be interesting to see if the Donchian Channels trading strategy can surpass the bollinger
bands strategy.
If it does, we will have a new second best indicator in this series.
If you don't know what I'm talking about, On the Trading Rush channel, we have tested
many different trading strategies 100 times to find their real win rates.
Check them out if you want.
Also if you are new to trading, don't forget to subscribe to the Trading Rush Channel,
after all you don't want to risk your real money on a indicator, that doesn't even work.
This is what the Donchian Channels indicator looks like on Trading View.
It will come with 3 lines, and they are called the upper band, the basis, and the lower bands
respectively.
Even though this indicator looks like a bollinger band, the trading strategy is quite different.
The Donchian Channels indicator is used to find the trend, so the popular trading strategy
based around it, is a trend following strategy.
When there is an uptrend going on, the upper and lower bands of the Donchian Channels,
will make higher highs and higher lows.
Similarly, when a down trend is going on, the upper and lower bands of the Donchian
Channels, will make lower highs and lower lows.
Now the basic Donchian Channels strategy goes something like this.
You buy, when the upper band of the Donchian Channels makes a new higher high, after making
lower lows.
Similarly, you sell, when the lower band of the Donchian Channels makes a new lower low,
after making higher highs.
Now there are a lot of problems with this basic setup.
So to make this indicator even more effective, I have modified the strategy a little bit
by adding few more rules.
Also remember, the 100 times tested data you are about to see, is based on this modified
strategy.
Here's how the modified and better Donchian Channels strategy goes.
To filter false signals given by the Donchian Channels, I have used the 200 period moving
average.
If price is above the moving average, we will only take buy signals given by the Donchian
Channels. and if price is below it, we will only take sell entry signals.
Furthermore, in the new modified setup.
the long entry signal is when, the upper band makes a new higher high, after lower band
had made a lower low.
Since in an uptrend, price rarely crosses below the lower Donchian Channels band, set
your stoploss just below the lower band.
Similarly, when the lower Donchian Channels band, makes a new lower low, after upper band
had made a higher high, it is a sell signal.
Set your stoploss, just above the upper band.
So, I tested Donchian Channels trading strategy 100 times using this modified setup, here's
what happened.
Number 1.
Since we used the 200 period moving average to find the long term trend, on an indicator
that is already a trend following indicator, the end results were looking very promising,
that's because in the beginning, the profit graph in the Trading Rush App was going almost
straight up.
The only time I remember the profit graph and win rate going this high at the start,
was when I tested the MACD strategy.
MACD strategy was the best performing trading strategy we have tested on this channel, and
it was looking like the Donchian Channels was going to surpass it.
By the way, I'm using the Official Trading Rush App for backtesting.
You can use it to test your trading strategy as well.
It will calculate profit graph, win rate and other useful data in just one click.
Saves a lot of time.
You can download it from the Play Store, or using the link in the description.
Number 2.
Another thing I noticed that was pretty interesting, was the stoploss.
The stoploss that was set using the upper and lower bands of the Donchian Channels,
was actually at a good enough distance.
It was not easily hit by small price movements, and it also gave a decent reward to risk ratio.
Now obviously, I have used a fixed stoploss and profit target while back testing, because
we have tested all other strategies the same way on the 30 minutes timeframe.
But since, this is a trend following strategy, you can use a trailing stoploss if you are
a trader that likes to catch the big moves.
Just remember that the win rate you will get will be different than what I got here.
When there is a trend going on, the price is rarely touch the lower band of the Donchian
Channels.
Furthermore, in a strong uptrend, the lower Donchian Channels band keeps making higher
lows.
So if you want to trail the stoploss only using the Donchian Channels, you can use the
lower band.
Just set the stoploss below the lower band, and trail it as the band moves higher.
Similar thing applies in a down trend.
If you want to trail the stoploss in a down trend, set it above the upper Donchian Channels
band, and trail it as the band moves lower.
Due to a sudden or bigger price movement, if the entry and stoploss according to the
Donchian Channels strategy, are far away from each other, you can simply skip that trade.
Otherwise the probability of getting a better reward to risk ratio will be a little bit
low.
Number 3.
To be honest, this is one of the better indicators we have tested on this channel.
Unlike other indicators, that were showing multiple problems while testing, this indicator
is works perfectly with the modified trading strategy we created in this video.
Since it shows where to set the stoploss, and also shows the direction of the trend,
it can be easily picked by most new traders.
So, the win rate I got after testing the Donchian Channels trading strategy 100 times, was approximately
58 percent.
Which is one of the best win rates we have gotten on the Trading Rush Channel.
The bollinger bands trading strategy had an approximate win rate of 55 percent.
So this strategy is not bad at all.
The Donchian Channels strategy is a profitable strategy.
As you can see in the Trading Rush app, I lost 42 trades, and won 58 trades.
Since I was using a 1.5 to 1 reward risk ratio, the account was up by 4500.
The profit graph in this example looks much better when compared to some other indicators
we have tested so far.
The maximum number of winners I had, were 6, and max number of losing trades were 7.
But in the end, the Donchian Channels trading strategy, turned out to be one of the best
trading strategies, that we have tested in the strategies tested 100 times series.
Like the video if you liked it.
If you want to see other trading strategies tested 100 times to find their win rates,
Subscribe to the Trading Rush Channel and ring that notification bell.
After all, you don't want to trade using a strategy that doesn't even make money.
Also, don't forget to check out the Official Trading Rush app.
Thanks a lot for watching, and special thanks to all the Patrons who make these videos possible,
by supporting the Trading Rush Channel on Patreon.
Thanks a lot.