The Donchian channels indicator consists of 3 lines: an upper and lower line that are formed by the highs and lows over the last X period, and a middle line that is the average of the upper and lower lines.
The strategy is simple: enter a long position if the upper line creates a new high, and exit when the price closes below the middle line. If shorting, enter when the lower line creates a new low, and exit when price crosses above the middle line.
Donchian Channels strategy for the SPY on the 15min timeframe
Results
Testing this strategy on the SPY has returned the following profit factors:
- 1min: 0.945
- 5min: 1.169
- 15min: 1.182
- 30min: 1.15
- 1hour: 1.048
- 4hour: 1.025
- 1day: 0.954
- Average: 1.068
This strategy works best on the 15 and 5 minute timeframes, with bad results on the 1 minute and the daily timeframes. Remember, different ticker symbols can provide different results.
TradingView Script
Try the Donchian Channels strategy for yourself on TradingView: https://www.tradingview.com/script/ilKtgJqV-Donchian-Channels-backtestx/
Test with your own tickers and timeframes to see how well it works!