Channel Reversion Entries Filtered by a Long-Term Trend

Summary

The Channel Reversion System seeks to buy weakness near the bottom of a recent trading range, but only when price remains above its long-term moving average. It defines the range with prior-bar highs and lows over a 50-day Donchian channel and marks its lower quarter as the entry zone. A long position closes at the channel midpoint, below the channel floor by an ATR-based buffer, or when price breaks below the 200-day SMA.

The script is presented for liquid index ETFs on daily charts and includes settings for the channel, trend filter, ATR stop, commissions, and slippage. Its comments report roughly a 64% win rate, a profit factor near 2.3, and maximum drawdown around 15%, with the strategy in cash most of the time. The author says a trailing exit was tested and rejected based on weaker profit factor and deeper drawdown despite similar net return. These figures are claims in the script comments; the excerpt provides no supporting test period or independent validation, limiting how broadly they can be applied.

Key ideas

• The system buys in the lower quarter of a 50-day Donchian channel when price is above its 200-day SMA.
• The profit target is the channel midpoint, while an ATR buffer below the channel floor marks structural failure.
• A close below the 200-day SMA also exits the long position.
• The script comments report about a 64% win rate, a profit factor near 2.3, and maximum drawdown around 15%.
• The excerpt does not state the test period or provide independent support for the reported performance figures.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.