Donchian Channel strategies - start trading at nextmarkets

Last updated: 23.01.2020
Richard Adcock
Author:
Richard Adcock
Adviser
CFD & Trading
Experience
> 30 years

Trading on the Forex market can be profitable for beginners and experienced traders alike, but you can increase your chances of success if you make use of the numerous Forex indicators which are available. Developed to gain an insight into market behaviour, Forex indicators come in various forms and the vast majority of traders rely on a mix of indicators when devising a trading strategy. Used to highlight trends, averages and volatility, the Donchian Channel is just one type of Forex indicator you can use to plot your entry and exit points on the FX market with your nextmarkets trading account.

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What is a Donchian Channel strategy?

In its most basic terms, a Donchian Channel strategy is a trading strategy which is based around the Donchian Channel indicator. Originally developed by Richard Donchian, the Channel is designed to show the highest and lowest levels of a financial instrument over a set period of time. In addition to this, the Donchian Channel can be customised to a show a third factor; the average performance of the financial instrument during the chosen set period.

Once plotted onto your nextmarkets trading platform, the Donchian Channel will show how your chosen instrument has performed previously and how it’s performing now in relation to prior market activity. Using this information, traders can develop various strategies based on the information provided by the Donchian Channel.

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What are the Turtle trading rules?

The Turtle trading rules are a well-known Donchian Channel strategy and they have been used by traders all over the world to make a profit from the FX market. Devised in the mid-1980s, two Wall Street traders decided to see whether successful trading could be taught to a group of beginners with no previous trading experience. Known as the ‘Turtles’, these beginners were given basic instructions and then let loose to devise their own strategies and make their own trades.

Despite being phenomenally successful, the strategy the Turtle’s used was remarkably simple and was based upon the widely-used Donchian Channel. By using the Donchian Channel indicator to assess trends in the market, the Turtles used two systems to profit from market behaviour. Having worked for amateur traders in the 1980s, could the Turtle trading rules still be a suitable form of trading for beginners for those who use the nextmarkets platform?

What is the best Donchian Channel strategy?

The Donchian Channel itself merely provides information, it does not formulate a strategy. However, strategies are built around the Channel and are closely linked to how the Channel works and the information the indicator provides. Whilst the Turtle trading strategy is one of the most well-known Donchian Channel trading strategies, it is not the only one used alongside this particular indicator.

A time-based trading strategy is often used by day traders, for example, and is based on the information provided by the Donchian Channel. Relatively simple to employ, many people feel a time-based trading strategy is an appropriate form of day trading for beginners. Ultimately, however, the best Donchian Channel strategy will vary from trader to trader. Only by examining your overall objective and the type of trades you want to make on your nextmarkets portfolio, will you determine which strategy is likely to be most effective.

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Finding a Turtle trading strategy UK that works with nextmarkets

Successful trading involves buying and selling at the right times to maximise profits on the nextmarkets platform. A Turtle trading strategy is designed to deliver trade prompts so that the trader can increase the chance of entering and exiting the market at the right time. Of course, there have been variations of the Turtle trading rules since they were originally devised and you may need to experiment in order to find a Turtle trading strategy UK that works for you.

One of the easiest ways to assess the suitability of Turtle trading strategies or any Forex trading strategies to watch real-time examples taking place. By seeing how experienced traders use the Donchian Channel indicator and the Turtle trading rules to influence their trading activity, you can learn to employ such strategies yourself and even modify them to suit your needs.

Fact Check

  • The Trading turtle rules were developed for beginners
  • The Donchian Channel parameters can be modified to suit almost any type of trading
  • You can use the Donchian Channel with other indicators to gain greater insight and more technical analysis on your nextmarkets trades
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Entering the market using the Turtle trading Rules

When using the Donchian Channel, you’ll set the indicator to a certain number of points on your nextmarkets profile. The most common number is 20, but this can be altered depending on your needs. You may want to see how your chosen selected financial instrument has performed over the past 20 days, 20 hours or 20 minutes, for example. According to the original Turtle trading rules, traders should enter the market when a price breakout was emerging.

Designed to capture upcoming trends early on, this could enable traders to increase their profit if the breakout continues, providing they exit the market at the right time, of course. Proponents of the strategy suggest that entering the market using the Turtle trading rules can set the trader up for a highly profitable trade if the strategy is used correctly.

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Reducing risk with the Turtle trading rules on nextmarkets

To make large returns, traders want to buy when a trend is first taking off so they can maximise the profit they’re able to make once they sell on their nextmarkets account. However, the Turtles attempted to mitigate the risk by only trading on certain breakouts. Whilst a breakout within a 20-day price range could indicate an emerging trend, this was not guaranteed.

According to the strategy, a trade would only be opened on a 20-day breakout if the previous 20-day breakout had failed to develop into a trend. The rationale behind this was simple; if the last breakout failed to indicate a trend, the next one would be more likely too. By entering only when there was a price breakout according to the Donchian Channel and only when a trend had failed to materialise from the previous breakout, traders felt they were reducing risk with the Turtle trading rules.

Increase profits with the Turtle trading system on nextmarkets

When traders employ Forex or CFD trading strategies, it’s because they hope to increase their returns on their nextmarkets account. Whilst the 20-day breakout entry strategy could provide a good point to open a trade, only trading when the previous 20-day breakout had failed could mean that traders missed some emerging trends. In order to avoid this, another component was added to the Turtle trading system.

By using a 55-day Donchian Channel indicator, as well as a 20-day indicator, traders could see how the current price was performing in relation to the last 55 days. If a breakout occurred on the 55-day pattern, it should be traded, according to the Turtle trading rules. Unlike the 20-day breakout rule, the 55-day breakout rule does not require the previous breakout to have failed in order to signify that a trade should be made.

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Simple Donchian Channel strategies

Although the Turtle trading rules may appear complicated at first, it’s actually a good example of simple Donchian Channel strategies. As the Donchian Channel is one of the most straightforward indicators to use, many new nextmarkets traders prefer to use it over other types of technical indicators. However, no trading strategies will appear simply if you haven’t grasped the basics.

If you need to know what is trading or what is Forex trading, for example, then you’ll need to get these straight in your head before you move on to the more intricate aspects of broker strategies. Knowing how to trade CFD or how the Forex market works if, of course, necessary to trade but having an understanding of how economic indicators and Forex trading strategies are used can be extremely beneficial.

Day Trading Basics explained

Although you may have heard the term before, you may still be asking, what is day trading? In fact, the concept is fairly straightforward and simple. When you employ CFD trading strategies, for example, you may already have an exit point in mind. Often, this will depend on how the instrument performs and when or if it hits your own markers.

With day trading, however, traders limit their trades to just one day at a maximum. Also known as intraday trading, day trading strategies involve closing the trade before the market closes for the day, thus avoiding the risk of overnight volatility causing drastic changes to the market when it first opens. By making numerous trades throughout a one-day trading period, traders hope to make a series of profits throughout the day and end up with a profit once the market closes at the end of the day’s trading period. This means that they will access their nextmarkets account a number of times during the day in order to finalize their trades before the day ends.

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The original Turtle trading rules

The original Turtle trading rules employed a 20 day and 55-day Donchian Channel to signify when trades should be made. However, the Donchian Channel indicator is highly customizable and can also be used for day trading, if you wish to use it in this way. Of course, a 20 or 55 day Channel is not going to be particularly useful for day traders. Both strategies, however, can be used on the nextmarkets platform.

Due to the limited trading period, day traders may be more interested in how a specific financial instrument has performed in the last minute, hour or day. By simply modifying the settings of your Donchian Channel, you can update the original Turtle trading rules and combine them with your own Forex trading strategies to increase your chance of success.

Choosing a Forex broker

Before you can start trading on the markets, you’ll need to select a broker so that you can open and close trades. Although there are plenty of brokers out there, they don’t all provide the same services and some charge much higher rates than others. When you’re choosing a Forex broker it’s important to do some research to ensure you select the best Forex broker for you.

At nextmarkets, we offer a wide range of services and features, so traders can make the most of their time on the markets. As well as providing commission-free trades and no account or deposit fees, we offer free trading tips, online coaching and curated investments. If you’re looking for the best Forex and CFD broker, why not take a look at what we offer?

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Did you know

  • The Donchian Channel is a Forex indicator popular with nextmarkets traders
  • Based on trends, the Donchian Channel shows how instruments have performed in the past
  • The Turtle trading strategy uses entry and exit points based on Donchian Channel breakouts

Using a successful Donchian Channel strategy

By using a successful Donchian Channel strategy, traders can maximise their profits and, arguably, reduce the risk associated with trading. Indeed, it is because Donchian Channel strategies can result in successful trades over and over again that they are so popular amongst traders.

However, trading strategies provide no guarantees and successful trades will not necessarily occur simply because you’ve faithfully applied a Donchian Channel strategy, or any other type of trading strategy. Although Forex indicators, such as the Donchian Channel, provide analysis of the market and specific instruments, trading strategies can only be used as a base for trading activity and not as a guarantee of success. Despite the risk, this type of trading is very popular on nextmarkets.

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Updating the Turtle trading strategy

Since the Turtle trading strategy was first developed the markets have been subject to numerous changes. In addition to this, new indicators and strategies have emerged, and many markets have been subject to modified regulation.

Due to this, many traders feel that updating the Turtle trading strategy is necessary in order for it to be a viable trading strategy in today’s markets. Many traders claim that the original 20 day and 55 day periods used in the Turtle trading system are now too short for today’s markets and that longer timeframes should be used to determine when trades should be made. At nextmarkets, the trading platform can accommodate both the traditional and modern timeframes, according to the trader’s needs.

Best Donchian Channel strategy ever for beginners

New traders are often eager to get started on the markets and it can be tempted to forge ahead and start making trades as soon as your account is active. However, not even the best Donchian Channel strategy ever for beginners can guarantee success.

For many, the relatively simple theory behind the Turtle trading system makes it one of the best Donchian Channel strategies for beginners but others argue that crossover strategies using the Donchian Channel alongside other indicators, such as moving averages, is a more reliable trading strategy. Realistically, the Donchian Channel is rarely used in isolation these days and the vast majority of nextmarkets traders rely on a range of indicators when developing a trading strategy.

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What’s the most successful Turtle trading strategy?

The dual breakout approach adopted by the original system arguably made it the most successful Turtle trading strategy. By taking a relatively short approach via the 20-day breakout analysis and adding the 55-day breakout entry as an intended failsafe, the Turtle trading strategy gave traders a good chance of entering the market at the beginning of an emerging trend.

However, various modifications can be and have been, made to the original strategy. By customising the Donchian Channel parameters and the Turtle trading strategies, traders can use the combination to create the most successful strategy for their chosen type of investment and their chosen financial instrument on their nextmarkets account.

Finding a Forex app with Donchian Channel

Traders need to be able to access their trading platform at all times in order to respond to changes in the market. In order to do this, many traders rely on mobile devices and Forex apps, for example. At nextmarkets, we understand the importance of having your trading tools to hand at any given time.

As well as providing access to our trading software via our bespoke Forex app, you’ll have access to key Forex indicators, such as the Donchian Channel, Forex signals and trading tips for online coaches and experienced investors. With real-time trading examples available online and via the trading app, you can learn how successful traders are profiting from the market before you employ trading strategies of your own.

Use a Donchian Channel strategy with nextmarkets now

If you’re a new trader, you may want to see how the Donchian Channel works and what other indicators it can be used with. With plenty of examples available and online coaches explaining how each indicator provides specific types of analysis, we provide great resources when it comes to Forex trading for beginners.

We even offer a free demo account so you can try out trading strategies, learn what is CFD trading, access tips, signals and ideas without risking any of your capital. Instead, your trading demo account will contain EUR 10,000 for you to trade with and you’ll also have access to a whole host of trading features and services. To find out more, register with nextmarkets today.

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