Channel Reversion Entries Filtered by a Long-Term Trend

Summary

The Channel Reversion System seeks long entries near the lower edge of a recent trading range, but only when price is above a long-term moving average. It defines the range with prior-bar highs and lows from a Donchian channel, places the entry zone in its lower quarter, and targets the channel midpoint. A stop sits an ATR-based distance below the channel floor; a close below the trend average also exits the position. The design aims to capture a return toward the range center while avoiding countertrend entries.

The document reports backtests on QQQ and SPY, including commissions and slippage, with win rates, profit factors, and drawdowns; it also states that the strategy does not beat buy-and-hold on raw return. A trailing exit and a leveraged wrapper are reported as rejected variants with weaker results. These figures come from historical tests, and the author cautions that the symbols share a market era and that broader markets and subperiods need validation. They are historical results, not forecasts.

Key ideas

• Entries occur in the lower quarter of a prior-bar Donchian range when price is above the long-term simple moving average.
• The profit target is the channel midpoint, while an ATR-based floor stop and a trend-break exit limit exposure.
• Reported QQQ and SPY backtests emphasize risk-adjusted characteristics and also show lower raw returns than buy-and-hold.
• The document identifies limited market history and symbol coverage as reasons to test other instruments and periods.

Tags

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