Donchian Channel

Donchian bands only change when a new high or low is made. If price stays within the prior range, the bands remain flat. This 'stepped' appearance reflects the pure price-based nature of the indicator.

Wait for the daily close above/below the band. Intraday touches often reverse (false breakouts). The close confirms that the breakout has strength. Some traders even wait for two consecutive closes.

The standard stop at the opposite band can be wide because it represents the other extreme of the recent range. This is by design - trend following needs room to work. Manage risk through position sizing, not tighter stops.

Narrow bands indicate a consolidation or squeeze - price hasn't moved much recently. This often precedes a significant breakout. Narrow bands mean any breakout could be the start of a larger move.

Yes, Donchian trading (long positions) is perfectly suitable for TFSA accounts. The lower trading frequency compared to some strategies also reduces concerns about being flagged for frequent trading.

Filter breakouts with trend alignment (price above/below EMA), ADX > 20, and volume confirmation. Even with filters, some false breakouts will occur - that's part of the system. Control risk through position sizing.

The Turtle system uses different periods (20 entry, 10 exit). Using a shorter exit period lets the trade develop but exits faster when the trend weakens. This typically improves results versus same-period entry/exit.

Donchian uses pure price (highest high, lowest low). Bollinger uses standard deviation around a moving average. Donchian is better for breakout trading; Bollinger is better for volatility analysis and mean reversion.

The standard 20-day entry / 10-day exit works well for most Canadian stocks on daily charts. For less liquid stocks, consider longer periods (30/15) to filter noise. Always backtest on your specific instruments.

Add units only after price moves in your favor (typically 1/2 ATR). Move all stops to breakeven or better with each add. Limit total units (4 per position is common). Never add to losing positions.

Trade multiple uncorrelated markets (sectors, asset classes). Size positions using ATR to normalize risk. Limit exposure: 4 units per market, 10 units per correlated group, 20 total. Track portfolio-level risk daily.

Test periods from 10-55 days for entries, with exits at 50% of entry period. Use walk-forward analysis. Evaluate by Sharpe ratio and max drawdown, not just returns. Prefer robust parameters that work across multiple periods.

System 1 skips a signal if the previous signal in that market was profitable. This reduces overtrading. System 2 takes all signals as a backup. The rule acknowledges that trends often need a failed breakout before the real move.

Track rolling correlation between positions. Limit exposure to highly correlated markets (6 units Turtle rule). When adding positions, check correlation with existing holdings. Consider sector ETFs to reduce single-stock correlation.

Expect 20-40% maximum drawdowns for trend-following Donchian. Drawdowns can be extended (months to over a year) during ranging markets. This is normal - the system profits when trends emerge. Ensure you can psychologically and financially handle this.