Donchian Channel Breakout Strategy Diagram
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The oldest trend-following idea there is: the Donchian Channels indicator draws the highest high and the lowest low of the last N candles, and the strategy joins the move as soon as a candle closes outside that channel. It is always in the market, flipping from long to short and back on the opposite breakout.
Strategy Overview
- Donchian Channels are calculated on finished candles; the upper band is the highest high of the period, the lower band the lowest low.
- Both bands are delayed by one candle, so the close of the current candle is compared with a channel that was already closed before it — otherwise the current candle would raise the band it is supposed to break.
- The current position is part of every decision, and the order volume adds the absolute position, so one market order closes the old side and opens the new one.
Entry and Exit Rules
- Long entry: The candle closes above the upper band of the previous candle and the position is not long. The order buys the base volume plus the absolute position, which reverses a short into a long or opens a long from flat.
- Short entry: The candle closes below the lower band of the previous candle and the position is not short. The order sells the base volume plus the absolute position, which reverses a long into a short or opens a short from flat.
- Exit: There is no stop, no target and no separate exit block: the position is held until the opposite breakout reverses it.
Parameters
| Parameter | Default | Description |
|---|---|---|
| Channel period | 20 | Number of candles the highest high and the lowest low are taken over. |
| Volume | 1 | Base order volume, in lots; the absolute position is added on top of it when reversing. |
| Candles | 00:05:00 | Candle time frame the whole diagram works on. |
Diagram Details
- The candle block feeds the Donchian Channels indicator and, through a converter, the close price.
- Two converters read the UpperBand and LowerBand values out of the indicator, and two previous-value blocks shift them one candle back.
- Two comparison blocks test the close against the shifted bands; two more compare the position against zero, and a logical AND joins one of each into an entry signal.
- A formula block computes the reversal volume as base volume plus the absolute position and feeds both position modify blocks.
- The diagram uses a 20-candle channel on five-minute candles so it can trade on a month of history.
Usage
Import the .json file into Designer, run it in the backtester on historical data, then adjust the parameters or the blocks themselves to fit your instrument before trading it live.