August 20, 2009
This idea was put forth by David Varadi over at CSS Analytics. (see his orignial post here, and the follow-up)
The basis of the method David describes in his post is to use a larger Donchian Channel to determine the main trend, then scale into positions using smaller channel breakouts. Position size is adjusted according to the size of the channel being traded (larger channel = larger position size) and whether the position is in the same direction or counter to the main trend.
The rules I implemented to test this strategy are as follows:
- The 200 day channel dictates the main trend.
- Smaller channels are traded using a 2 ATR (10 day exponential average) stop.
- Strategy 1 = 20 day Donchian Channel
- Strategy 2 = 50 day Donchian Channel
- Strategy 3 = 100 day Donchian Channel
- Donchian Channel length doubled for trades taken counter to the main trend.
- Reduce position size by half when trading counter to the main trend.
- Entries only triggered by new channel breaks (current breakout must be preceded by break in the opposing direction).
Strategy 1
- With Trend
- Enter on 20 day Donchian Breakout
- Exit on 10 day Donchian Breakout
- Position Multiplier = .20
- Counter to Trend
- Enter on 40 day Donchian Breakout
- Exit on 20 day Donchian Breakout
- Position Multiplier = .10
Strategy 2
- With Trend
- Enter on 50 day Donchian Breakout
- Exit on 25 day Donchian Breakout
- Position Multiplier = .30
- Counter to Trend
- Enter on 100 day Donchian Breakout
- Exit on 50 day Donchian Breakout
- Position Multiplier = .15
Strategy 3
- With Trend
- Enter on 100 day Donchian Breakout
- Exit on 50 day Donchian Breakout
- Position Multiplier = .50
- Counter to Trend
- Enter on 200 day Donchian Breakout
- Exit on 100 day Donchian Breakout
- Position Multiplier = .25
- Position Size = ((Account Equity * 1%)/2 ATR) * Position Multiplier
- Transaction Slippage = 2 ticks
- Markets Traded: ES, NQ, TF, GC, SI, HG, CL, HO, NG, RB, ZC, CC, CT, KC, ZW, LE, HE, ZS, SB, AUD, GBP, JPY, EUR, CHF
Results:
Start Date
19840103
End Data
20090818
Trade Days
6449
Years
25.59
Months
Years
Winning
175
21
Losing
132
5
Best
27%
51%
Worst
-12%
-13%
CAGR
12%
Max DrawDown
20070817
-32%
MAR
.39
Lake Ratio
11%
R-Squared
.88
Sharpe Ratio
.83
Total Return
1947%
Starting Equity
$ 1,000,000
Ending Equity
$ 20,469,738
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