Richard Donchian and his channels

The Donchian channels are perfect for lazy traders, like myself. This is a great feature of computerisation, we don’t need to draw manually any more the support and resistance levels, The DC does instead of us. Many decades ago all the traders - mostly technicians - needed to do that manually, but nowadays it is a great support by most of trading platforms. This channels show us clearly and easily the highest high and lowest low points. On H1 chart - see below - if you set up 24, you might see the last 24 hours lowest and highest levels, which mostly indicates the support and resistance levels. So it is so practical and smooth, just look quickly on the chart and you see the highest and lowest prices in the last 24 hours. You don’t need to draw lines anymore manually. Basically the Turtle Traders used and still use thousands of traders his DC channels to identify the breakouts. Commonly used by trend followers, likeTurtle Traders they set for DC22 breakout, and close at DC11 if turns the market.

 The Donchian Channel - DC - invented by Richard Donchian. He used to be a commodity and future trader and passed away twenty years ago. He was - as many of us - was fascinated by Livermore book, the Reminiscences of a Stock Operator. After 1929, the Great Crash, he started to analyze technically the market and became of the pioneer of technical analysis - started to study the price histories. He became one of the first market technician. Barbara Dixon, one of his students, observed how he computed his moving averages, posted his own charts by hand, and developed his market signals without the benefit of an accurate database, software, or any computing capability. His jacket pockets were always loaded down with pencils and a pencil sharpener

In the 70s he was managing $27 million at American Express making $1 million a year in fees and commissions and another million in trading profits on his own money. He was a really profitable trader with 90% hit rate.

Basically he was rather a trend follower and used the moving avarages (5/20) as well as an entry/exit indicator. In the Post World War period he served as a teacher and mentor to thousands of traders and publicated monthly basis his ideas about the market. Still today his works has huge number of followers. Maybe you are not aware of that, but everybody of us more or less trend followers, so basically we all follow his all time rules.

My favorite is statement from Donchian is the following as William Baldwin said an interview to Forbes:

He didn’t predict price movements, he just followed them. His explanation for his success was simple and as old as the “Dow Theory" itself: “Trends persist.”A lot of people say things like: Gold has got to come down. It went up too fast. That’s why 85 percent of commodities investors lose money," he says. He was never distracted from his system. “The fundamentals are supposed to be bullish in copper," he says. “But I’m on the short side now because the trend is down."

Here youcould find more rules from him, Ed Seykota collected some together from his first book:

http://www.seykota.com/Tribe/resources/Donchian/

FOREX TRADING ROOM:

Only 3€ per day!

Our forex workshop on skype each day. 10:30-16:00(GMT+1, Paris) Name: ”Blindfoldedmonkey”

http://blindfoldedmonkey.webs.com/trading-room