The Donchian Trend System

Filed under: Learn Forex Trading |

Richard Donchian

There are many variations of trend following systems; and all of them are long term and require a certain mindset. One of the most famous is a system called the ‘Donchian Trend System’, which is a system based on the Donchian Channel, an indicator created by Richard Donchian. The famous turtle traders created the system, and surprisingly, it is still profitable even today.

 

The system is a breakout system. When price breaks through the highest high of the past twenty days, the system takes a long trade (providing that the 25 period simple moving average is crossed above a 350 period simple moving average – which is a trend filter). Conversely, if price closes below the lowest low of the past twenty days, then the system takes a short trade (providing that the 25 period simple moving average is crossed below a 350 period simple moving average). A 2ATR stop loss is employed and long trades are exited when price closes below the lowest low of the past ten days; and short trades are exited when price closes above the highest high of the past ten days.

 

I recently coded all of this into an expert advisor and tested the system on MT4. I test the system on the daily charts of all the forex majors since the year 2000, and wouldn’t you just know it, the system was profitable across every single pair. Unfortunately, the profits were not massive and therefore would not make anyone rich. However, if you had a big enough trading bank and you did this over a large number of pairs, then it could be a useful system to have in your portfolio. However, it is a very long-term system, and would take a lot of patience to operate. But it just goes to show that systems work – and good systems, classic systems, still work thirty years later!

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