Price action trading with Donchian Bands

Personally,I am still have no confidence to trade price action only. I still need a dynamic support and resistant indicator to improve my confidence when entering the trade. One of the good tool that I found is the Donchian Bands or Donchian Channel. I use Donchian Bands as the bounce area when price hit the upper or lower bands and there is a price action signal around the area.

After backtesting and looking for the good signal, the following trade conditions are good area to open the trade

BUY Position

• Candle must hit or move around lower Donchian Bands
• Candle must be closed and have a long wick—pin bar candle is more powerful
• Open position when price move up and break the long wick candle
• I use fibonacci 161 level for my target
• Stop loss must be placed on the recent low on the lower Donchian Bands

Illustration

 

As on the chart above, we spot a pin bar candle on the lower Donchian Bands, on the next candle, when price break this pin bar candle, open Long/Buy and the target is middle and upper Donchian Bands. Don’t forget to put the stop loss on the recent low as above.

SELL position

• Price must hit or near the upper Donchian Bands
• Price must have long wick or long tail
• Open SELL on the breakout of the long wick candle

Illustration

See how price failed to close above the upper Donchian and start making long wick candle. Wait until the candle closed and open position when the next candle move below the long wick candle. Put the stop above the recent high and the target is the middle and the lower Donchian Bands.