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Donchian Channel Fadeno average at all

Evidence: ModerateIntermediateMean reversion · Channel

A Donchian channel is the highest high and the lowest low of the last N bars. There is no averaging, no deviation, no smoothing — it is the most mechanical measure in this book, and the hardest to argue with about what it says.

The awkward part is that the same channel is the basis of one of the best-evidenced trend strategies in the library. Here you are taking the other side of that break. Both cannot be right on the same instrument at the same time, which is why the regime gate on this page is not optional.

The evidence here is for reversion itself, not for this particular measure of it. The ruler below is a way of deciding when price has stretched far enough — it is not what makes it come back.

Category
Mean reversion · Channel
Timeframe
H1 primary · D1 for the regime check
Suitable pairs
EURGBP · USDCHF · EURCHF — the range-prone crosses
Session
London and New York
Indicators / tools
Donchian Channel(20) · ADX(14) on D1 · ATR(14)

Valid setup

MR-10 · DONCHIAN CHANNEL FADE — VALID SETUP EURGBP · H1 · no averaging anywhere — the channel steps, because highs and lows do LONG 0.85117 0.85167 0.85217 0.85267 0.85317 0.85367 0.85417 to the mean 1R Donchian(20) — pure high and low TARGET = channel midpoint ENTRY STOP 1 2 3 4 0.85259 0.85222 0.85146 ① ADX under 20 on D1 — otherwise read the breakout version instead ② The low touches the channel ③ But the candle CLOSES back inside — a touch, not a break ④ Next candle closes above the touching candle's low — enter ⑤ Out immediately if price closes outside the channel ⑥ Target the channel midpoint

Exact rules

Entry

  • Regime gate, checked on D1 first: ADX(14) below 20 and price inside the previous week's range. If the instrument is trending, close this page and read the breakout version instead.
  • Setup: a candle's low touches or breaks the lower Donchian(20), but the candle closes back inside the channel.
  • Trigger: the next candle closes above the low of the touching candle. Enter at that close.
  • A close outside the channel is a break, not a touch, and it cancels the setup entirely.

Stop loss

  • Below the channel low, plus 0.4 × ATR(14).
  • If price closes below the channel after entry, exit immediately — that is the breakout strategy triggering against you.
  • Risk 0.5%.

Take profit / exit

  • The channel midpoint — the average of the 20-bar high and low.
  • A partial there and a runner to the upper channel is a variant, tested separately.
  • Time exit after twelve bars.

Build Donchian Channel Fade

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More from Mean reversion

RSI(2) Extremesthe short-period oscillatorBollinger Band Fadetwo standard deviationsZ-Score Reversionthe distance, stated plainly

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.