Steps to identifying your Forex breakout trade.
As with any strategy, at DailyFX Education we recommend that you filter your trades solely in the direction of the trend. There are many benefits to following trends. Two benefits of trend trading include being bailed out of having an imperfect strategy and there are more pips available in the direction of the trend. Therefore, trading with the Donchian Channels is no different and we want to incorporate a way to filter our trends and bias our signals.
Add Your Entry Order
Once we have determined a trend bias, identify the entry price by incorporating the trend and Donchian Channels together.
For example, in an uptrend, we want to buy 1 pip above the upper Donchian Channel. The best signal occurs on the first occasion where the upper Donchian Channel is reached. Subsequent breaks of the upper channel are ok, but the trend is a bit more mature and therefore, more likely to reverse.
In a downtrend, we want to sell 1 pip below the lower Donchian Channel. Again, the best signal occurs on the first occasion where the lower Donchian Cchannel is reached.
Add Your Exit Order
Once you have determined where to get in, it is important to know where to exit the trade. This strategy utilizes a manual trailing stop which is how many professionals manage their stops. For the purposes of this strategy, the trailing stop is located at the same price as the opposing Donchian channel.
Learn Forex: Exits with the Donchian Channel Indicator
Conclusion
Many traders often ask if they can trade breakouts without having to use the Donchian channels indicator. The answer is yes, of course. The basic elements of a Forex breakout strategy remain the same. Look for a level of support and resistance, and play a price break of those levels.
As with any strategy, your entry and exit rules are just a couple pieces to the trading plan puzzle. Make sure your risk is commensurate to the size of account you are trading.
- Add the Donchian Channel indicator to your chart
- Identify the direction of trend
- Enter on a break of the using entry orders
- Exit on a break of the opposing using a stop loss
- Let’s unpack each step of the strategy further.
- Add the Donchian Channels indicator to your intraday chart with an input setting
As with any strategy, at DailyFX Education we recommend that you filter your trades solely in the direction of the trend. There are many benefits to following trends. Two benefits of trend trading include being bailed out of having an imperfect strategy and there are more pips available in the direction of the trend. Therefore, trading with the Donchian Channels is no different and we want to incorporate a way to filter our trends and bias our signals.
Add Your Entry Order
Once we have determined a trend bias, identify the entry price by incorporating the trend and Donchian Channels together.
For example, in an uptrend, we want to buy 1 pip above the upper Donchian Channel. The best signal occurs on the first occasion where the upper Donchian Channel is reached. Subsequent breaks of the upper channel are ok, but the trend is a bit more mature and therefore, more likely to reverse.
In a downtrend, we want to sell 1 pip below the lower Donchian Channel. Again, the best signal occurs on the first occasion where the lower Donchian Cchannel is reached.
Add Your Exit Order
Once you have determined where to get in, it is important to know where to exit the trade. This strategy utilizes a manual trailing stop which is how many professionals manage their stops. For the purposes of this strategy, the trailing stop is located at the same price as the opposing Donchian channel.
Learn Forex: Exits with the Donchian Channel Indicator
For example, if the trend is up, then we will use the lower Donchian channel as the stop loss. If you remain in the trade long enough, then over time, the lower Donchian channel and your stop loss will begin to move in your favor. The longer you are in the trade, the more favorable the trailing stop moves in your direction.
Conclusion
Many traders often ask if they can trade breakouts without having to use the Donchian channels indicator. The answer is yes, of course. The basic elements of a Forex breakout strategy remain the same. Look for a level of support and resistance, and play a price break of those levels.
As with any strategy, your entry and exit rules are just a couple pieces to the trading plan puzzle. Make sure your risk is commensurate to the size of account you are trading.
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