Donchian Dip
The Donchian Dip
This strategy is designed to look for good "Buy the Dip" entries on stocks that are clearly in a strong 1-year upward trend. If you do not know how to identify those stocks on your own please do not use this system or continue your education until you do. The Donchian Dip strategy was designed on the daily time frame but works amazingly well on both daily and weekly timeframes. It does still work on intraday charts also if the current trend on the daily chart is in a strong uptrend.
Chart Setup:
3-period Donchian Channel with a 1-period offset (hide basis)
Bollinger Bands with the default settings of 20/2 (display basis)
Entry Signals:
There are 3 different entry signals that will be printed on the chart that have similar underlying criteria but are ranked based on skill level just like ski slope skill levels! I recommend only taking green entries until you are familiar with the system and the stocks you are trading.
Green Easy Entry:
This is the safest buy the dip entry that is normally found at or near a large retracement bottom. You might get one or two bad entries but be persistent and eventually, a great entry will present itself!
These are the specifics for the conditions that trigger a Green entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed below the Bollinger Band Basis (20 SMA )
4. The low of the previous bar or 2 bars back was below the lower Bollinger Band
Blue Intermediate Entry:
This is a decent entry if you missed the green entry, want to add to an existing position, or are not sure it will pull back far enough to even give a green entry. I would suggest only trade these entries to add to an existing pyramid position or get back into a trade that you were recently stopped out of. However, on high-flying stocks like TSLA these signals and the Black Diamond entry signals might be the only ones you get for a long time. Also, on the weekly chart, Blue or Black entries are sometimes all you will get for a year or more.
These are the specifics for the conditions that trigger a Blue entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed below the Bollinger Band Basis (20 SMA )
Black Diamond Advanced Rule:
This is normally just a small pullback re-entry signal on a strong trending stock like TSLA ...trade with extreme caution!!! You have been warned but daredevils feel free to give it a shot. I sometimes do trade these entries if the market and sector of the stock I am trading are extremely bullish or if I am looking to add to a position but I use a conservative stop.
These are the specifics for the conditions that trigger a Black entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed above the Bollinger Band Basis (20 SMA )
Exit Criteria:
The goal of this strategy is to buy the dip and hold as long as possible...let's practice some Paytience and exercise those holding muscles! RLT!!!
So, we don't want to exit early but we also want to protect our profits somehow. We do this by using the built-in trailing stops that are defined by dots of three different shades of purple on the chart (feel free to change these in the settings). Simply move your trailing stop to the highest current dot price level. Do not move the trailing stop down ever even if a lower dot is printed later. These are simply the suggested trailing stops and definitely use your own judgment for exits but if you backtest this strategy enough you will most likely discover that in the long run, these trailing stops work really well.
I hope this strategy helps you to identify good "Buy the Dip" entries on stocks you love as well as trains you to hold your winners longer for bigger gains.
***HOW TO ADD TO YOUR CHARTS***
1) Click the "Add to Favorite Scripts" button
2) Go to a stock chart and click the "Indicators" icon at the top
3) Next, on the left, click the "Favorites" and then click the "Naked Put - Growth Indicator v2"
4) It should appear on your charts, and you can click the "gear" icon on the study to edit a few settings.
5) Read the release notes above so you understand how it works.
This strategy is designed to look for good "Buy the Dip" entries on stocks that are clearly in a strong 1-year upward trend. If you do not know how to identify those stocks on your own please do not use this system or continue your education until you do. The Donchian Dip strategy was designed on the daily time frame but works amazingly well on both daily and weekly timeframes. It does still work on intraday charts also if the current trend on the daily chart is in a strong uptrend.
Chart Setup:
3-period Donchian Channel with a 1-period offset (hide basis)
Bollinger Bands with the default settings of 20/2 (display basis)
Entry Signals:
There are 3 different entry signals that will be printed on the chart that have similar underlying criteria but are ranked based on skill level just like ski slope skill levels! I recommend only taking green entries until you are familiar with the system and the stocks you are trading.
Green Easy Entry:
This is the safest buy the dip entry that is normally found at or near a large retracement bottom. You might get one or two bad entries but be persistent and eventually, a great entry will present itself!
These are the specifics for the conditions that trigger a Green entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed below the Bollinger Band Basis (20 SMA )
4. The low of the previous bar or 2 bars back was below the lower Bollinger Band
Blue Intermediate Entry:
This is a decent entry if you missed the green entry, want to add to an existing position, or are not sure it will pull back far enough to even give a green entry. I would suggest only trade these entries to add to an existing pyramid position or get back into a trade that you were recently stopped out of. However, on high-flying stocks like TSLA these signals and the Black Diamond entry signals might be the only ones you get for a long time. Also, on the weekly chart, Blue or Black entries are sometimes all you will get for a year or more.
These are the specifics for the conditions that trigger a Blue entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed below the Bollinger Band Basis (20 SMA )
Black Diamond Advanced Rule:
This is normally just a small pullback re-entry signal on a strong trending stock like TSLA ...trade with extreme caution!!! You have been warned but daredevils feel free to give it a shot. I sometimes do trade these entries if the market and sector of the stock I am trading are extremely bullish or if I am looking to add to a position but I use a conservative stop.
These are the specifics for the conditions that trigger a Black entry if you want to know what they are:
1. The current bar is an up bar (green or white bar) and closed above the lower Donchian channel
2. Previous bar or 2 bars back closed below the lower Donchian channel
3. Previous bar or 2 bars back closed above the Bollinger Band Basis (20 SMA )
Exit Criteria:
The goal of this strategy is to buy the dip and hold as long as possible...let's practice some Paytience and exercise those holding muscles! RLT!!!
So, we don't want to exit early but we also want to protect our profits somehow. We do this by using the built-in trailing stops that are defined by dots of three different shades of purple on the chart (feel free to change these in the settings). Simply move your trailing stop to the highest current dot price level. Do not move the trailing stop down ever even if a lower dot is printed later. These are simply the suggested trailing stops and definitely use your own judgment for exits but if you backtest this strategy enough you will most likely discover that in the long run, these trailing stops work really well.
I hope this strategy helps you to identify good "Buy the Dip" entries on stocks you love as well as trains you to hold your winners longer for bigger gains.
***HOW TO ADD TO YOUR CHARTS***
1) Click the "Add to Favorite Scripts" button
2) Go to a stock chart and click the "Indicators" icon at the top
3) Next, on the left, click the "Favorites" and then click the "Naked Put - Growth Indicator v2"
4) It should appear on your charts, and you can click the "gear" icon on the study to edit a few settings.
5) Read the release notes above so you understand how it works.
Release Notes:
1. Added a "Recommended Initial Stop" based on the following conditions:
- High of the current or previous candle (whichever is the lower of the two) minus 2.5 times the 14 period Average Tru Range (ATR)
This initial stop seems to provide a good conservative stop placement but is only a recommended location and I advise you to look at previous support and resistance levels as well and to adjust the stop according to your own risk levels. This recomended stop can be edited by changing the "Stop ATR Multiple" in the indicator settings with a higher multiple value producing a more conservative stop.
2. Cleaned up the script and names of indicator inputs to allow for easier adjustments in the indicator settings
- High of the current or previous candle (whichever is the lower of the two) minus 2.5 times the 14 period Average Tru Range (ATR)
This initial stop seems to provide a good conservative stop placement but is only a recommended location and I advise you to look at previous support and resistance levels as well and to adjust the stop according to your own risk levels. This recomended stop can be edited by changing the "Stop ATR Multiple" in the indicator settings with a higher multiple value producing a more conservative stop.
2. Cleaned up the script and names of indicator inputs to allow for easier adjustments in the indicator settings
Release Notes:
Since this system only works on stocks that are in a strong uptrend, I added a simple trend indicator to help quickly identify stocks that have been in an uptrend recently. This indicator does not mean or forecast that the trend will continue at all. Instead, it is a very simple visual representation of "is the stock moving from lower left to upper right on the chart" based on set values of time and percentage gain.
Again this indicator only displays what the past trend has been!!! It by no means in any way claims to predict the future trend.
Simple Trend Indicator:
The continuous bar on the top of the chart indicates the following:
Green: For the past six months, the stock has been in an uptrend with the condition that the current price has experienced at least a 15% increase from where it was 26 weeks ago (6 months).
Red: For the past six months, the stock has been in a downtrend with the condition that the current price has experienced at least a 15% decrease from where it was 26 weeks ago (6 months).
Orange: For the past six months, the stock has been in a sideways trend with the condition that the current price has experienced less than a 15% increase and less than a 15% decrease from where it was 26 weeks ago (6 months).
The number of weeks in a trend as well as the percent gain to classify a trend can both be adjusted in the indicator settings. I suggest trying the default setting of 26 weeks and 15% as well as 52 weeks and 30% for longer trends.
Again this indicator only displays what the past trend has been!!! It by no means in any way claims to predict the future trend.
Simple Trend Indicator:
The continuous bar on the top of the chart indicates the following:
Green: For the past six months, the stock has been in an uptrend with the condition that the current price has experienced at least a 15% increase from where it was 26 weeks ago (6 months).
Red: For the past six months, the stock has been in a downtrend with the condition that the current price has experienced at least a 15% decrease from where it was 26 weeks ago (6 months).
Orange: For the past six months, the stock has been in a sideways trend with the condition that the current price has experienced less than a 15% increase and less than a 15% decrease from where it was 26 weeks ago (6 months).
The number of weeks in a trend as well as the percent gain to classify a trend can both be adjusted in the indicator settings. I suggest trying the default setting of 26 weeks and 15% as well as 52 weeks and 30% for longer trends.
Release Notes:
Added 3 optional targets at 1, 2 and 3 times the stop risk amount. (editable in settings)
Release Notes:
Version 2.0
1. Cleaned up script
2. Added Alerts
3. Removed Black Entries as they fail frequently
4. Optimized and simplified trailing stops
5. Removed Recent Trend Indicator which can instead be found as a standalone script here:
Please stay tuned for the Donchian Dip Strategy version now in BETA testing and optimization.
1. Cleaned up script
2. Added Alerts
3. Removed Black Entries as they fail frequently
4. Optimized and simplified trailing stops
5. Removed Recent Trend Indicator which can instead be found as a standalone script here:
Please stay tuned for the Donchian Dip Strategy version now in BETA testing and optimization.