R&D Blog
Donchian Channel | Trading Strategy (Entry & Exit 2)
I. Trading Strategy
Developer: Richard D. Donchian. Concept: Trading strategy based on Donchian Channels. Research Goal: Performance verification of the channel entry and ATR stop. Specification: Table 1. Results: Figure 1-2. Trade Entry: Long Trades: A buy stop is placed one tick above the Donchian Channel (i.e. UpperChannel[i − 1]). Short Trades: A sell stop is placed one tick below the Donchian Channel (i.e. LowerChannel[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
All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.
Tested Variables: Channel_Length & ATR_Index (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | UpperChannel(Channel_Length) is the highest high over a period of Channel_Length. LowerChannel(Channel_Length) is the lowest low over a period of Channel_Length. | Channel_Length = [2, 100], Step = 2; |
| Setup: | N/A | |
| Filter: | N/A | |
| Entry: | Long Trades: A buy stop is placed one tick above the UpperChannel[i − 1]. Short Trades: A sell stop is placed one tick below the LowerChannel[i − 1]. Index: i ~ Current Bar. | |
| Exit: | ATR Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Index is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Index]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Index]. Stop Loss Exit: ATR(ATR_Length) is the 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_Index = [1.0, 6.0], Step = 0.1; ATR_Stop = 6; |
| Sensitivity Test: | Channel_Length = [2, 100], Step = 2 ATR_Ix = [1.0, 6.0], Step = 0.1 | |
| 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: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: Channel_Length & ATR_Index (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).
IV. Rating: Donchian Channel | Trading Strategy
A/B/C/D
Related Entries: Donchian Channel (Entry & Exit 1) | Combined Donchian Channels (Entry & Exit) | Donchian’s 20 Guides To Trading Commodities
Related Topics: (Public) Trading Strategies
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
Codes: matlab/donchian/channel/