Thread: Trading with Price Channels

Hello Traders,

When placing a trade in the market, professional traders always include a plan for managing their risk. One traditional method for setting risk levels is through the use of technical indicators. In previous articles we discussed using ATR and the PSAR indicator exactly for this purpose. Today we will examine another method of trailing stops using a custom pricing channel.


DNC (Donchian Channels) is a custom indicator that can be added to Marketscope 2.0 that can be used to establish initial and trailing stop levels on a trade. The indicator is designed to display the current high and low for a specified number of periods. Typically a setting of 55 or 20 periods is used for this purpose. Traders that prefer wider stops should opt for a higher DNC setting while, lower settings offer tighter stop entries.






The Chart below depicts the EURJPY downtrend developing from the March 2nd high at 111.42. Since this point we have entered three trades using multiple strategies. Regardless of our entry mechanism, one fact remains the same. We need to manage risk! Primary stops can use the 55 period high depicted with pricing channels as our first point to place our original stop. This level is important, if a trend begins making higher highs in a down trend we would want to exit our position as quickly as possible.


Pricing channels can also be used to lock in profit as a trend develops. As lower highs are made, our top channel will move lower as well in accordance to the new 55 period high. Traders can use this trailing component by manually update their stop to the current reading of the DNC indicator. Below we can see the upper channel residing at 102.86 on the EURJPY 8HR chart. From our initial entry, this would allow our primary trade on the EURJPY placed at 108.09 on April 4th lock in profit of 523 pips. This process can continue until price touches our top pricing channel or an established limit is taken.






Price Channels are a custom indicator and must be loaded into Marketscope 2.0. For a full description on how to add DNC Price Channels to your graph please see our download instructions.



---Written by Walker England, Trading Instructor

Feel Free to Post Trading your Donchian Channel questions, examples, trading ideas, comments in this thread.

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Hi Greg, curious, have you tested the DNC on a 5m or 1m chart? They look great for swing or longer term on the daily or 4H but I don't see the use for scalping other than showing R and S.

I have not downloaded or tried DNC, thus the question about short term.

Originally Posted by scalping fool

Hi Greg, curious, have you tested the DNC on a 5m or 1m chart? They look great for swing or longer term on the daily or 4H but I don't see the use for scalping other than showing R and S.

I have not downloaded or tried DNC, thus the question about short term.

Hello scalping fool. Shorter time frame charts have a fractal relationship with longer time frame charts. My Pip and Run strategy adapted a trend following system to shorter time-frame charts. You will have to adjust the DNC channels for shorter time frames. Here is an example of what I have used:
The Donchian channels are set as follows:

First channel to 21 periods - red channels
Second channel to 12 periods - blue channels.

For short time frame trading enter when price break to Don 21 (Red) and exit if it retrace back over the Don 12 (blue) channels.
Enter a trade on either a break of the 21 and exit on a shorter channel.
I only enter short if RSI is below 49 and longs if RSI is above 51.
I further look at the MA and enter in the direction of the shorter (green) MA.
The RSI is my filter.
Just to avoid confusion, you enter long if the upper channel is broken and visa versa for short

Hi Greg , just found this Thread, great topic. I have been using the Donchian Channels for many years on daily charts and just recently been experimenting using on a 5 min chart. Went live today with it and scored 20 pips on EUR/CAD and 34 pips on GBP/CAD. So I am 2-0 out of the box, If I can show a nice profit for the month I will share the details of my method

Originally Posted by Dennis S

Hi Greg , just found this Thread, great topic. I have been using the Donchian Channels for many years on daily charts and just recently been experimenting using on a 5 min chart. Went live today with it and scored 20 pips on EUR/CAD and 34 pips on GBP/CAD. So I am 2-0 out of the box, If I can show a nice profit for the month I will share the details of my method

Hi, just wondering how you got on with the 5 min charts using DNC's? What setting do you use?. I have been using DNC's for ages now mainly on the daily charts, set at 10 & 20. They work very well for me. I only need to check the charts once a day and put in my entries orders. Needless to day I do check them a lot more than that.
I am currently got quite a few psoitions open the oldest one is long on Kiwi & Aussie~USD
M$M

Originally Posted by Million$Man

Hi, just wondering how you got on with the 5 min charts using DNC's? What setting do you use?. I have been using DNC's for ages now mainly on the daily charts, set at 10 & 20. They work very well for me. I only need to check the charts once a day and put in my entries orders. Needless to day I do check them a lot more than that.
I am currently got quite a few psoitions open the oldest one is long on Kiwi & Aussie~USD
M$M

Hi Million$

Basics are, look to match a very strong currency to a very weak, Then I will look at the pair on a 5 min chart 12 hours of data with standard 55 period DNC, using a down trend as an example, I will then reduce the DNC until pull backs start to violate the upper channel. This could be any time period between 10 and 30, the volatility of the pair will determine the final DNC settings, to keep stops low 20 or less is ideal. There are then two ways to enter the trade. You can wait for a pull back of 75% of the channel with your stop just out side of channel resistance. Or buy on a breakout in direction of trend. I am still playing around with this so I would not bet the farm on it, Good Luck Trading!

All, Here is a good video on a DNC breakout strategy


Price Action/Donchian Breakout Method Examples in forex. - YouTube

Very nice video.
Don't you all feel all overwhelming this can be or is just me?
Everytime I enter this forum I find so much I didn't know...

All, Here is a good video on a DNC breakout strategy

Originally Posted by Million$Man

Hi, just wondering how you got on with the 5 min charts using DNC's? What setting do you use?. I have been using DNC's for ages now mainly on the daily charts, set at 10 & 20. They work very well for me. I only need to check the charts once a day and put in my entries orders. Needless to day I do check them a lot more than that.
I am currently got quite a few psoitions open the oldest one is long on Kiwi & Aussie~USD
M$M

Good morning, a couple of trades limited out this morning. Trades placed using DNC's only a combination of 10 & 20.
I have a few more open, hopefuully they should limit out fingers crossed

M$M

Small loss on cable...daily chart attached

Regards

M$M

Originally Posted by Dennis S

Hi Greg , just found this Thread, great topic. I have been using the Donchian Channels for many years on daily charts and just recently been experimenting using on a 5 min chart. Went live today with it and scored 20 pips on EUR/CAD and 34 pips on GBP/CAD. So I am 2-0 out of the box, If I can show a nice profit for the month I will share the details of my method

Hello Dennis! I know it is not the end of the month, but how are you doing with the DNC strategy?

Originally Posted by Million$Man

Small loss on cable...daily chart attached

Regards

M$M[ATTACH=CONFIG [/ATTACH]

Sorry to hear about your loss. GBP/USD looked like it was going to rollover and that sudden move higher caught many by surprise after a weaker retail sales number.

That 1.5732 level of the upper channel line looks like a good place to possibly re-attempt a chart

Originally Posted by Gregory McLeod

Sorry to hear about your loss. GBP/USD looked like it was going to rollover and that sudden move higher caught many by surprise after a weaker retail sales number.

That 1.5732 level of the upper channel line looks like a good place to possibly re-attempt a chart

Hi Greg, Losses are all part of the game as we all know. The two trades that closes earlier (if you look at the word doc.) more than made up for it. I have my eye on the upper channel (20 Period) and have placed a long order just above it. Lets see what happens.

Regards

M$M

Originally Posted by Million$Man

Hi, just wondering how you got on with the 5 min charts using DNC's? What setting do you use?. I have been using DNC's for ages now mainly on the daily charts, set at 10 & 20. They work very well for me. I only need to check the charts once a day and put in my entries orders. Needless to day I do check them a lot more than that.
I am currently got quite a few psoitions open the oldest one is long on Kiwi & Aussie~USD
M$M

that's the turtle rules....pretty much