Donchian Channels Breakout

• April 14, 2023
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This strategy is developed to trade the US Indices and US Indices CFDs. It uses the Donchian Channels as trigger to Entry. The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods – Therefore suitable for breakouts.

This strategy is traded on the H1 chart. And used in conjunction with Disparity Index Indicator.

The formula for Donchian Channels is below:

UC = Highest High in Last N Periods
Middle Channel=((UC+LC)/2)
LC = Lowest Low in Last N periods
where:
UC=Upper channel
N= Number of minutes, hours, days, weeks, months
Period= Minutes, hours, days, weeks, months
LC=Lower channel

The disparity index is a technical indicator that measures the relative position of an asset’s most recent closing price to a selected moving average and reports the value as a percentage.

The disparity index is a momentum indicator used by technical analysts that indicates the direction an asset is moving relative to a moving average.

Steve Nison said the disparity index is “similar to Western dual moving averages, but this technique allows for better market timing.”

As a formula, the equation for the disparity index would be expressed as:

Disparity Index =
(Current Market Price − n-PMAV)/(n-PMAV x 100)

where:
n-PMAV = n-Period moving average value
​

A value greater than zero—a positive percentage—shows that the price is rising, suggesting that the asset is gaining upward momentum. Conversely, a value less than zero—a negative percentage—can be interpreted as a sign that selling pressure is increasing, forcing the price to drop.

The Development: 

There is a twist here in the use of Disparity Index. You will see that the condition or rule is that it is used as like the ADX. So if the momentum is rising or increasing, this shows that the market is trending.