Donchian Channel: The 4 Week Rule

Donchian Channel

The Donchian Channel 4 week rule is one of the most robust Forex trading systems to trade when markets are strongly trending. Donchian Channel 4 week rules are as follows:

Cover short positions and buy long whenever the price exceeds the highest high of the previous 4 calendar weeks.
Liquidate long positions and sell short whenever the price falls below the lowest low of the previous 4 calendar weeks.

XUG.USD Donchian Channel 4 Week Rule

XUG.USD Donchian Channel 4 Week Rule

Donchian Channel (4 Week Rule) The Original System Adapted

The original Donchian Channel system is stop and Reverse: always in the market either long or short. Variants of the system include an ‘exit and go flat rule’. This rule involves selecting a faster exit parameter: for example enter at 100 day break (high or low), exit at a 50 day break (low or high).

The most famous variant of Donchian’s system is that used by the Turtle Traders under the instruction of Richard Dennis and William Eckhardt back in the early 1980’s.

One of the biggest criticisms of the Donchian Channel 4 Week Rule is the loosing streaks incurred when markets are range bound. A Trend Filter can be added to the Donchian Channel which helps to reduce counter trend whipsaw volatility and serves to improve Risk Adjusted Returns.

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Past performance is no guarantee of future performances or success.

CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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