USDJPY 15M DONCHIAN CHANNEL STRATEGY

Step #1: Attach the Donchian channel indicator to your chart. Preferred setting 20 periods.
For the purpose of this example, we’re going to plot the Donchian channel on the 15-minute time frame. The preferred Donchian channel settings is 20-periods, which means that the channel lines will be calculated based on the price action from the last 5 hour candles
Note* The Donchian indicator is a free pre-build technical indicator that comes free with most trading platforms.
Step #2: Wait until the price crawls along the upper Donchian Channel. The price should not go below the middle band during this stage.
It’s quite easy to visualize the Crawling Along pattern. When the price action touches the upper Donchian channel, and it stays glued to the upper line, we create the price effect where the price looks like it’s crawling along the top Donchian line.
If you think in terms of supply and demand, when the price is crawling along the upper Donchian channel, without departing too far away it means there are lots of buyers that try to push the price higher. This eventually will lead to seller capitulating once the breakout happens.
Another characteristic of the Crawling pattern is that during this stage, the price shouldn’t go below the middle Donchian band.
Note* The closer the price action moves along the upper band, the stronger the trend is.
If you spot this type of price action, then you know this day trend has a big potential for following through.
Step #3: Buy1 when the price pulls back to the middle Donchian band. Buy2 when the price pulls back to the lower Donchian band.
The channel width gives us a measurement of the market volatility. When we have high volatility in the market, this will be shown on the chart by wide channel bands, whereas low volatility will be displayed on the chart by a narrow channel.
Like with all technical indicators the Donchian channel can be subject to false signals from whipsaws and sizeable market swings. Breakouts are very hard to trade, and that is the reason why we prefer to enter on pullbacks.
We recommend splitting your trade into two parts as this will give you a better average entry price.
The first buy order is deployed when the price pulls back to the middle Donchian band, while the second buy order is deployed when the price retraces all the way to the lower Donchian band.
Our entry strategy will give us the opportunity to implement a proper risk management
This entry strategy is a good way of framing a trade. So, you have a very specific entry point
By sticking to this entry rules, you will realize this is not a bad trade to take because you trade in the direction of the prevailing trend
Step #4: Hide your protective Stop Loss below the lower Donchian band
Your stop loss can be placed below the lower Donchian band. The catch is that you need to move to the left side of the chart and find the first part of the lower Donchian band where it is flat.
You’ll find that often times the Donchian channel will plot perfectly flat lines. This can provide us with excellent spots to hide our stop loss.
Step #5: Take profit at the end of the day or if you want to ride the trend more take profit when
The beauty of the Donchian trading strategy is that you can apply multiple exit strategies so you can maximize your profits.
Now, that we know that the supply and demand balance is skewed to the upside, we can expect buyers to step in far quicker on retracements than they have before. This can indicate that we’ll have a buy explosion to the upside.
The first proposed exit strategy is to liquidate your position at the end of the day. Since we’re trying to take advantage only of the intraday trends we don’t want to have any overnight exposure.
Secondly, you can wait until the price breaks below the most recent flat lower Donchian band.
Note** the above was an example of a BUY trade using our Donchian Channel Strategy PDF. Use the same rules for a SELL trade – but in reverse.

Comment:

Nice breakout