Donchian Channels
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Donchian Channels were introduced by Richard Donchian, a pioneer in the field of trend following.
The Donchian Channel is a simple trend following breakout system. The Donchian Channel works well in trending markets, but doesn't work well in a sideways channel. The signals derived from the Price Channel are based on the following basic rules:
When price closes above the Donchian Channel, buy long and cover short positions.
When price closes below the Donchian Channel, sell short and liquidate long positions.
The Donchian Channel indicator is not meant to catch tops or bottoms, only trends. Trend traders may want to extend the standard 4 week period to 8 weeks in order to wait for significant trend signals, while others may shorten the period to a more sensitive 1 or 2 weeks for liquidation purposes.
The Donchian Channel is a simple trend following breakout system. The Donchian Channel works well in trending markets, but doesn't work well in a sideways channel. The signals derived from the Price Channel are based on the following basic rules:
When price closes above the Donchian Channel, buy long and cover short positions.
When price closes below the Donchian Channel, sell short and liquidate long positions.
The Donchian Channel indicator is not meant to catch tops or bottoms, only trends. Trend traders may want to extend the standard 4 week period to 8 weeks in order to wait for significant trend signals, while others may shorten the period to a more sensitive 1 or 2 weeks for liquidation purposes.
Investopedia
http://www.investopedia.com/terms/d/donchianchannels.asp
A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time intervals.
The Donchian Channel is a simple trend-following breakout system. The signals derived from this system are based on the following basic rules:
1. When price closes above the Donchian Channel, buy long and cover short positions.
2. When price closes below the Donchian Channel, sell short and liquidate long positions.
http://www.investopedia.com/terms/d/donchianchannels.asp
A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time intervals.
The Donchian Channel is a simple trend-following breakout system. The signals derived from this system are based on the following basic rules:
1. When price closes above the Donchian Channel, buy long and cover short positions.
2. When price closes below the Donchian Channel, sell short and liquidate long positions.
please read post by member break out http://www.elitetrader.com/vb/showthread.php?s=&threadid=18677&perpage=6&pagenumber=10
I've tried the Donchian and many other envelopes but never been entirely happy with any of them.
When able to be applied I find the Standard Error Channel does a very good job.
The chart illustrates the T3 which might be described as a more efficient or smoothed MA and is the best tool I've come across so far that 'cuts' the Price for B/S signals.
T3 MetaStock formula:
Periods:=Input("Periods?",1,63,5);
a:=Input("Hot?",0,2,.7);
e1:=Mov(P,Periods,E); {change P to H, L or O}
e2:=Mov(e1,Periods,E);
e3:=Mov(e2,Periods,E);
e4:=Mov(e3,Periods,E);
e5:=Mov(e4,Periods,E);
e6:=Mov(e5,Periods,E);
c1:=-a*a*a;
c2:=3*a*a+3*a*a*a;
c3:=-6*a*a-3*a-3*a*a*a;
c4:=1+3*a+a*a*a+3*a*a;
c1*e6+c2*e5+c3*e4+c4*e3;
edit: just discovered (!!!) entering 1.25 for instance in Hot produces a better higher/lower 'cut' with T3 P.
When able to be applied I find the Standard Error Channel does a very good job.
The chart illustrates the T3 which might be described as a more efficient or smoothed MA and is the best tool I've come across so far that 'cuts' the Price for B/S signals.
T3 MetaStock formula:
Periods:=Input("Periods?",1,63,5);
a:=Input("Hot?",0,2,.7);
e1:=Mov(P,Periods,E); {change P to H, L or O}
e2:=Mov(e1,Periods,E);
e3:=Mov(e2,Periods,E);
e4:=Mov(e3,Periods,E);
e5:=Mov(e4,Periods,E);
e6:=Mov(e5,Periods,E);
c1:=-a*a*a;
c2:=3*a*a+3*a*a*a;
c3:=-6*a*a-3*a-3*a*a*a;
c4:=1+3*a+a*a*a+3*a*a;
c1*e6+c2*e5+c3*e4+c4*e3;
edit: just discovered (!!!) entering 1.25 for instance in Hot produces a better higher/lower 'cut' with T3 P.
These are the results of a long term stock simulation using Consolidated Edison stock, symbol ED. The simulation is over 36.59 years from 2 January 1970 to 28 July 2006. Donchian channel parameters used are 90 days entry, 240 days exit, 10 percent risk. Position size is equal to 10 percent of equity divided by the difference between the 90 day high price and 240 day low price.
Number of trades 8
Total profit $ 3134673
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 3134513
Risk is 10.00 per cent of equity.
Drawdown is -0.0000 (-0.00 per cent).
Cumulative Annual Growth Rate (CAGR) is 85.67 per cent.
CAGR / Drawdown is infinity.
Instanteously Compounding Annual Growth Rate (ICAGR) is 9.50 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 9.97 per cent.
Information Ratio is 0.93
Initial capital is $ 100000
Long trades only.
Growth rates are calculated after subtracting commission & slippage.
===
Growth rate is about 86 percent per year and there are no losing trades.
Number of trades 8
Total profit $ 3134673
Profit after subtracting $ 10.00 commission, slippage per transaction: $ 3134513
Risk is 10.00 per cent of equity.
Drawdown is -0.0000 (-0.00 per cent).
Cumulative Annual Growth Rate (CAGR) is 85.67 per cent.
CAGR / Drawdown is infinity.
Instanteously Compounding Annual Growth Rate (ICAGR) is 9.50 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 9.97 per cent.
Information Ratio is 0.93
Initial capital is $ 100000
Long trades only.
Growth rates are calculated after subtracting commission & slippage.
===
Growth rate is about 86 percent per year and there are no losing trades.
You're not around anymore, so I'm really just responding to this post so I can return to this information in the future, should I so desire, without starting a new thread.
I was trading my own version of Donchian Channels for awhile (see the image on the left) but had to modify it to meet my needs (see the image on the right).
I recently discovered that Lee Leibfarth already came up with something like this back in 2006 called the adaptive price zone.
I therefore wanted to compare his indicator with mine, but I could only find it for MetaTrader 5. My broker only offers MetaTrader 4 though, so I just hired a programmer to alter the code for me so I can use in on my MT4 charts. (It's supposed to be ready by April 17th.)
I already received the indicator I ordered like two days early, and I loaded it on a five-minute chart. My indicator is the one with the solid lines. Lee Leibfarth's Adaptive Price Zone (APZ) is the one with the dotted lines, with the settings altered to match my envelope as closely as possible.
If I were going to use it, I would have to plot both on my charts, in that I do not like the way the APZ bulges like Bollinger bands during periods of increased volatility.
If I were going to use it, I would have to plot both on my charts, in that I do not like the way the APZ bulges like Bollinger bands during periods of increased volatility.
I loaded a second APZ on my chart with different settings so I could use its (yellow) central line as an intraday trend line, but I did not like how "wobbly" it was, so I plotted my own matching (white) proprietary moving average on the chart, which is noticeably smoother, and is what I would use if I wished to utilize this setup.
