Donchian Steps Momentum Forex Trading Strategy

Some traders argue that trading should be fast. They believe that the longer you trade, the more vulnerable you are to unwanted market reversals. Press releases may appear that do not support your trading position. Large institutional traders at major banks can take market-moving positions at your convenience. Maybe the market will reverse direction for no reason. The shorter your trade stays open, the less vulnerable you are to such a negative trading scenario.

This is especially true for momentum trading. Momentum trading signals often push the price in the direction of the signal within the next several candles. That's when price action and candlestick patterns can show signs of slowing momentum. After that, it was everyone's game. The price may reverse direction or it may be just a slight retracement for the bigger trend. It is also a balancing act. Taking trades with short timeframes can increase your accuracy, but can shorten your reward-to-risk ratio. It is up to you as a trader what you decide to do. Are you chasing high returns from a trend or locking in profits from short trades?

Donchian Steps Momentum Forex Trading Strategy is a fast trading strategy that trades momentum signals targeting a strong trending market. It uses a set of indicators that can help traders spot a strong trend and identify clear entry signals.

Donchian Canal

The Donchian Channel is a trend-following technical indicator that helps traders identify the direction of the trend based on extreme price movements.

This indicator presents a band-like structure by taking the highest high and the lowest low in a period. Then he draws a line showing the two extremes that make up the top and bottom of the channel. It also draws the midline, which is the median of the period's high and low.

The Donchian channel can help traders spot trends and volatility.

As a trend indicator, traders can visually identify the direction of the trend by seeing how the center line is skewed. If the midline continues to rise, the market may be in an uptrend. On the other hand, if the midline continues to fall, the market may be in a downtrend.

The Donchian channel is also very useful as a volatility indicator because it is based on the highs and lows of a period, which essentially represents the range of price movement within that period. When the channel contracts, volatility is lower, whereas when the channel widens, volatility increases.

MACD cross

Moving Average Convergence and Divergence (MACD) is a popular technical indicator used by many professional traders, both retail and institutional.

MACD is an oscillator that calculates the difference between two moving average lines, usually set at 12 and 26 periods. Then it is drawn as a line in its own window. Then a second line called the signal line is derived from the MACD line. This line is basically the moving average of the MACD line. The cross between the MACD line and the signal line is considered a trend reversal indicator. The MACD line crossing above the signal line indicates an uptrend, while a reversal indicates a downtrend. Some MACD indicators draw histogram bars to show the difference between two lines.

The MACD Cross indicator simplifies this by plotting the points to show the cross. A bullish crossover is indicated by a blue dot plotted below the price candle. A bearish crossover is indicated by a red dot plotted above the price candle.

trading strategy

This trading strategy is a momentum strategy that trades in the direction of the trend as observed based on the Donchian channel.

The trend is based on how the center line of the Donchian channel moves, whether it continues to rise or fall. Traders can also monitor price movements based on swing highs and swing lows.

If the trend direction is confirmed, then we can wait for the entry signal based on the confluence of the momentum candle and the MACD cross signal. The Momentum candle that intersects with the MACD Cross indicator means that the Momentum signal is strong enough to generate a signal on the MACD Cross indicator.

The trade is then held for several candles and exits after the next momentum candle ends.