Donchian Channel and SMA Pullback Entry Strategy

Summary

This strategy combines Donchian Channel extremes with a simple moving average filter. It enters long when price reaches or falls below the prior channel low while the close is above the SMA, and enters short when price reaches or exceeds the prior channel high while the close is below the SMA. Longs exit at the upper channel and shorts at the lower channel. The channel uses the highest high and lowest low over a chosen lookback, with an offset; the SMA is calculated from closing prices.

The document frames the method as suited to trending markets and warns of frequent trading costs, weak performance in ranges, and parameter instability across markets and timeframes. It recommends out-of-sample evaluation, sensitivity checks, trend-strength or volatility filters, trailing exits, and volatility-dependent channel lengths. A BTC/USDT futures backtest setup and parameter defaults are listed, but no performance evidence is provided. The code's testing-period helper always returns true, so the listed date controls do not constrain its trades as written.

Key ideas

• The SMA acts as a directional filter while Donchian Channel boundaries determine entries and exits.
• Longs enter near the lower channel when the close is above the SMA; shorts enter near the upper channel when the close is below it.
• The described exits use the opposite Donchian boundary.
• Rangebound conditions, trading costs, and parameter instability are stated risks.
• The example code's testing-period function always returns true, and the document reports no results.

Tags

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