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Donchian Channel Reversal Strategy

Donchian Channels mark recent highs and lows over a chosen period. Prices that pierce those boundaries and then reverse can signal exhaustion. This strategy watches for closes back inside the channel after a brief breakout.

Testing indicates an average annual return of about 157%. It performs best in the crypto market.

If the previous close was below the lower band and the current close moves back above it, a long trade is taken. Conversely, if the prior close was above the upper band and price falls back inside, a short is opened. A percentage stop manages risk in both cases.

By trading only after a failed breakout this approach attempts to capture false moves that quickly retrace.

Details

  • Entry Criteria: Price closes back inside Donchian Channel after breaching upper or lower band.
  • Long/Short: Both.
  • Exit Criteria: Stop-loss.
  • Stops: Yes, percentage based.
  • Default Values:
    • Period = 20
    • StopLossPercent = 2
    • CandleType = 15 minute
  • Filters:
    • Category: Reversal
    • Direction: Both
    • Indicators: Donchian Channel
    • Stops: Yes
    • Complexity: Basic
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: No
    • Risk level: Medium
using System;
using System.Collections.Generic;
using System.Linq;

using Ecng.Common;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;

/// <summary>
/// Donchian Reversal strategy.
/// A breakout is a close beyond the channel of the Period candles before it. When the next close returns above the lower band
/// that was broken the position turns long, and when it returns below a broken upper band it turns short. A percent stop limits the loss.
/// </summary>
public class DonchianReversalStrategy : Strategy
{
	private readonly StrategyParam<int> _period;
	private readonly StrategyParam<decimal> _stopLossPercent;
	private readonly StrategyParam<DataType> _candleType;

	private readonly List<(decimal High, decimal Low)> _candles = [];
	// The previous close and the channel it was compared with.
	private (decimal Close, decimal Upper, decimal Lower)? _previous;

	/// <summary>
	/// Donchian Channel period.
	/// </summary>
	public int Period
	{
		get => _period.Value;
		set => _period.Value = value;
	}

	/// <summary>
	/// Stop-loss percentage.
	/// </summary>
	public decimal StopLossPercent
	{
		get => _stopLossPercent.Value;
		set => _stopLossPercent.Value = value;
	}

	/// <summary>
	/// Candle type.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Constructor.
	/// </summary>
	public DonchianReversalStrategy()
	{
		_period = Param(nameof(Period), 20)
			.SetGreaterThanZero()
			.SetDisplay("Period", "Donchian Channel period", "Indicators");

		_stopLossPercent = Param(nameof(StopLossPercent), 2m)
			.SetNotNegative()
			.SetDisplay("Stop Loss %", "Stop loss percentage from entry price", "Risk");

		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(15).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return [(Security, CandleType)];
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_candles.Clear();
		_previous = null;
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		_candles.Clear();
		_previous = null;

		var subscription = SubscribeCandles(CandleType);
		subscription
			.Bind(ProcessCandle)
			.Start();

		StartProtection(new Unit(), new Unit(StopLossPercent, UnitTypes.Percent), useMarketOrders: true, isLocalStop: true);

		// The stop has to see prices between candles, not only at their close.
		foreach (var field in new[] { Level1Fields.BestBidPrice, Level1Fields.BestAskPrice })
		{
			var quotes = new Subscription(DataType.Level1, Security);
			quotes.MarketData.BuildField = field;
			SubscribeLevel1(quotes).Bind(ObserveProtectionQuote).Start();
		}

		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawOwnTrades(area);
		}
	}

	private void ObserveProtectionQuote(Level1ChangeMessage quote)
	{
		// The high-level handler activates native protection before this callback, also between signal bars.
	}

	private void ProcessCandle(ICandleMessage candle)
	{
		if (candle.State != CandleStates.Finished)
			return;

		var close = candle.ClosePrice;
		var previous = _previous;

		// The channel of the candles before this one, for the next candle to compare with.
		_previous = _candles.Count == Period
			? (close, _candles.Max(c => c.High), _candles.Min(c => c.Low))
			: null;

		_candles.Add((candle.HighPrice, candle.LowPrice));

		if (_candles.Count > Period)
			_candles.RemoveAt(0);

		if (previous is not { } prior || !IsFormedAndOnlineAndAllowTrading())
			return;

		if (prior.Close < prior.Lower && close > prior.Lower && Position <= 0)
			BuyMarket(Volume + Math.Abs(Position));
		else if (prior.Close > prior.Upper && close < prior.Upper && Position >= 0)
			SellMarket(Volume + Math.Abs(Position));
	}
}