Donchian Channels Trend CCI Forex Trading Strategy

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Donchian Channels Trend CCI Forex Trading Strategy

Many new traders often get attracted to trend reversal and crossover strategies when they first start trading. This is often because of the simplicity of such strategies and the lure of winning big.

It is quite easy to see huge trends when looking at a chart with a moving average crossover. New traders would often look at a chart and think to themselves, “If only I traded this trend.” So, many would mindlessly trade trend reversals without even asking why price reversed.

Trend reversals happen because of one common theme – Price Rejection. Trends end and reverse whenever market participants start to feel that price is either too high or too low. Traders who opened a trade in the direction of the trend would then start to close their trades, and mean reversal traders would start to enter trades that go against the current trend. This would then push price to the opposite direction, creating trend reversal candlestick patterns and other price action indications, such as long wicks, pin bars, engulfing patterns, etc. Then, if the reversal gains momentum, that is the time that the trend would officially start to reverse.

The Donchian Channels Trend CCI Forex Trading Strategy is a trend reversal strategy based on price rejection and a confirmation of a momentum shift.

Donchian Channels

The Donchian Channel is a momentum based technical indicator developed by Richard Donchian. It is a very simple yet effective method in determining oversold and overbought market conditions, trend direction, momentum and reversals.

The Donchian Channel is composed of an upper and lower band as well as a midline. The upper band is based on the highest high within period, while the lower band is based on the lowest low within the same period. These price levels would usually correspond to a swing low and a swing high, which is a natural horizontal support and resistance. During trending market conditions, price would break swing highs or swing lows more often depending on the direction of the trend. In fact, it is even common to see highs or lows being broken within a few candles during strong market trends.

The midline on the other hand is a simple average of the upper and lower band. Momentum traders could use this line to judge the direction of the trend. Price constantly staying above the midline indicate a bullish trend, while price constantly staying below the midline indicate a bearish trend. Trend reversals could also be based on price crossing over the Donchian Channel’s midline.

Double CCI Woodies

The Double CCI Woodies indicator is a momentum oscillating indicator based on the Commodity Channel Index (CCI). It is designed to have its line oscillate approximately 70 to 80 percent of the time between -100 to +100, although this could vary depending on the settings used.

Some Mean Reversal traders would also consider the market oversold when the CCI line is below -200 and overbought when the CCI line is above +200. On the other hand, Momentum Traders would consider breaches below -200 and above +200 as an indication of strong momentum.

The Double CCI Woodies indicator is a modified version of the CCI indicator which plots two CCI lines. This allows traders to observe two CCI lines and identify the direction of the longer-term trend and the shorter-term trend. The longer period CCI is considered as the Trend CCI while the shorter period CCI is considered the Entry CCI.

The Trend CCI also has histogram bars attached to it. Yellow bars indicate that the Trend CCI has just crossed over the midline and may start to trend. Green bars indicate a bullish trend while red bars indicate a bearish trend.

Trading Strategy

The Donchian Channels Trend CCI Forex Trading Strategy is trend reversal strategy which makes use of the Donchian Channels and the Double CCI Woodies indicator.

Price rejection should be observed based on the outer bands of the Donchian Channels. If such price rejection is just minor and does not result in a fresh trend, price would stay within the same side of the Donchian Channel based on the midline. However, if the trend does gain momentum and starts to reverse, price should crossover the midline.

The trend reversal should then be confirmed by the Double CCI Woodies indicator. This would be based on its two CCI lines crossing over zero and a second histogram bar crossing over zero. These histogram bars should be colored green for bullish trends or red for bearish trends.

Indicators:

  • DoubleCCI Woodies
    • Trendcci_Period: 36
    • Entrycci_Period: 21
  • Donchian Channels
    • BarsToCount: 39

Preferred Time Frames: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York session

Buy Trade Setup

Entry

  • Price should reject the lower band of the Donchian Channel indicated by a bullish reversal candlestick pattern or long wicks.
  • Price should close above the midline of the Donchian Channel indicating a bullish momentum reversal.
  • On the Double CCI Woodies indicator, the Trend CCI and the Entry CCI should cross above zero.
  • The Trend CCI histograms should change to green indicating a bullish trend reversal.
  • These bullish signals should be closely aligned.
  • Enter a buy order on the confirmation of the above conditions.

Stop Loss

  • Set the stop loss on the support level below the entry candle.

Exit

  • Close the trade as soon as the Entry CCI crosses and stays below zero for two periods.

Donchian Channels Trend CCI Forex Trading Strategy

Donchian Channels Trend CCI Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should reject the upper band of the Donchian Channel indicated by a bearish reversal candlestick pattern or long wicks.
  • Price should close below the midline of the Donchian Channel indicating a bearish momentum reversal.
  • On the Double CCI Woodies indicator, the Trend CCI and the Entry CCI should cross below zero.
  • The Trend CCI histograms should change to red indicating a bearish trend reversal.
  • These bearish signals should be closely aligned.
  • Enter a sell order on the confirmation of the above conditions.

Stop Loss

  • Set the stop loss on the resistance level above the entry candle.

Exit

  • Close the trade as soon as the Entry CCI crosses and stays above zero for two periods.

Donchian Channels Trend CCI Forex Trading Strategy 3

Donchian Channels Trend CCI Forex Trading Strategy 4

Conclusion

This strategy is a good trend reversal strategy. It accounts for price rejection of certain levels and indications of a momentum-based trend reversal.

This strategy has a reward-risk ratio, which is common for trend reversal strategies. However, it also manages to have a relatively higher probability of a winning trade compared to most trend reversal strategies.

The key to this is to learn to identify price rejection based on price action and trend reversals which are based on momentum. It is also best to incorporate certain price levels which are commonly rejected by the market. This could be Pivot Points, a previous horizontal support or resistance, a swing high or a swing low, or even round numbers.

Master this strategy and profit from the market.


Forex Trading Strategies Installation Instructions

Donchian Channels Trend CCI Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

Donchian Channels Trend CCI Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install Donchian Channels Trend CCI Forex Trading Strategy?

  • Download Donchian Channels Trend CCI Forex Trading Strategy.zip
  • *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select Donchian Channels Trend CCI Forex Trading Strategy
  • You will see Donchian Channels Trend CCI Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

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