Automated Trading and Strategy Testing Forum
XMA Ichimoku Channel:
In this indicator the moving averages are calculated the same way as the ones of Ichimoku Kinko Hyo (see XMA_Ichimoku), the envelopes are built afterwards.
Author: Nikolay Kositsin
Forum on trading, automated trading systems and testing trading strategies
Indicators: Donchian Channels
newdigital, 2013.10.15 06:20
A Basic Breakout Strategy For Forex
Let’s get started!
Trading Donchian Channels
Donchian Channels can be applied to any chart to extrapolate current
levels of support and resistance. They do this by clearly identify the
high and low on a graph created during the selected number of periods.
Above we can see the Donchian Channels applied to a GBPUSD 4Hour chart,
using a 20 period setting. The channel lines highlight the current 20
periods high and low values, which can be used as support and resistance
when trading breakouts. Breakout traders in a downtrend will look for
price to break below the lower channel prior to creating new entries in
the direction of the trend. The same is true in an uptrend, where
traders will identify the upper channel as a potential area to enter the
Since the price of the GBPUSD has declined as much as 346 pips for the
month of October, many traders will want to identify new entries to sell
the pair on a breakout towards lower lows. With our current low already
identified by the Donchian Channels at 1.5913, traders can begin
preparing for a breakout below this value. As pictured below, you can
find a sample breakout setup. Entry orders to sell the GBPUSD can be
placed at a minimum of one pip below support, so traders enter the
market on a breakout to lower lows.
As with any strategy, breakout traders should incorporate stops into
their trading. When using Donchian Channels, this process can be made
very easy. Remember how the top pricing channel (representing the 20
period high), acts as an area of resistance? In a downtrend price is
expected to make lower lows and stay below this value. If a new high is
created, with a breach of the upper channel, traders will want to exit
their positions. Traders may also want to manually tail and move their
stop order to lock in profit as the trend continues. On trading tip
breakout traders can employ is moving this preset stop along with the
decreasing pricing channel as the trade moves in their favor.