I took 200 trades with the Donchian Channels indicator to find its win rate, and this is what happened.
You see, Donchian Channels is one of the best indicators you will ever use in your entire trading journey.
When I tested it last time, in the previous 100-trade testing series, it gave the second-highest win rate out of all the strategies.
In fact, I would say that it was as good as the highest-win-rate strategy we have seen in the mostly good market.
In this video, I want to take 100 trades with it in the extremely good trending market to see how high the win rate can go.
Then, I will take another 100 trades in the extremely bad market to see how low the win rate can go.
But how in the world does this indicator even work?
Well, this indicator comes with three lines.
The upper band, the lower band, and the middle line.
When the price moves strongly in the upward direction, the upper band will also move in the upward direction.
Something like this.
When the price moves down, the lower band will move in the downward direction.
But that’s nothing special.
There are many other indicators that show the upward and downward price movement as well.
But what this indicator excels at is the accuracy of the upward and downward movement.
For example, on this chart, the price was moving strongly in the upward direction.
In this case, both the upper and the lower band were moving in the upward direction.
But then the price slowed down.
It started to move in a sideways direction.
Since the price was no longer making an upward move, the upper band also became flat.
And so did the lower band.
Then the price made a downward move.
The lower band also moved down, indicating downward pressure.
So far, everything is simple.
Nothing special.
But then things get more interesting.
You see, let’s say you are a trend trader and you take long trades in this uptrend.
Instead of buying at the top, you like to trade when the price makes a downward move, something like this.
Now, many indicators would have given a long entry after this downward move when the price started to move a little bit in the upward direction.
But not the Donchian Channels indicator.
Look at the upper band.
It is still saying the price movement is flat.
It is not saying the upward momentum has returned.
At least, not yet.
When we are trend trading in an uptrend, we need the upward momentum to be stronger.
But if you had taken a long entry near this point where the Donchian Channels indicator was showing a flat movement, then you would have been stuck in a trade for a while because the price movement was flat.
But if you had listened to the Donchian Channel’s upper band, you would have avoided the sideways movement and would have taken a long trade only when the upward move became stronger again.
For example, after staying flat for a while, the upper band finally made an upward move, and that’s the point where it says to take a long trade.
Something like this.
But things get even better.
See, since the lower band follows the price at a distance, we can use it to set the stop loss as well.
So, after taking a long trade, the stop loss goes below the lower band of the Donchian Channels.
Like this.
I set the profit target at 1.5 times the stop-loss distance in all my testing videos.
To filter false entries even further, you can use the 200-period moving average to find the long-term trend direction.
If the price is above the 200 EMA, we will only look for buy entries with the Donchian Channels indicator.
But always remember, the buy entry at the upward move of the upper band is only taken when the lower band has recently moved in the downward direction.
Something like this.
For comparison, on this chart, the upper band only moved up and up.
And the lower band also moved up and up.
If the lower band didn’t move down in an uptrend, it means that the price didn’t have a decent-sized pullback or a discount.
When we take a buy entry after the price has moved down, or after the lower band has moved down, then we have a higher probability of not buying at the top of the trend.
I mean, on this chart, the entry is near the top as well, but in other setups, it will be near the bottom of the pullback.
Something like this.
So when we take a long trade when the upper band starts to move up again, we have to make sure the lower band had recently moved down, like this.
It shouldn’t look like this, where there was no pullback.
On the other hand, if the price is trending below the 200-period moving average, we will see it as a long-term downtrend and will only look to sell.
We will wait for the upper band of the channel to move higher in a downtrend, something like this.
And then, when the price starts to move back in the downtrend direction, we will wait for the lower band to also start moving down.
When it does that, we will take a short entry at the closing price of the candle, something like this.
We will set the stop loss above the upper band of the Donchian Channels indicator.
Then we will set the profit target at 1.5 times the stop-loss distance or use a 1.5-to-1 reward-to-risk ratio.
Now, since we want to take 100 trades in the extremely good market and another 100 trades in the extremely bad market, I went to the Gold/USD one-day time frame.
Then I added a nine-period exponential moving average to the chart.
If the price was clearly staying above this 9 EMA, I saw it as an excellent trend for the “extremely good market” test.
And I took 100 trades in it.
If the price was not clearly staying above the 9 EMA or was ranging, choppy, or slow like this, then I saw it as a bad market for the trend strategy.
And this is where I took 100 trades for the “bad market” test.
I also drew red boxes around the not-clearly-trending movement.
I only took long trades, because the Gold/USD has been moving in a really nice uptrend, even in the long run on the daily time frame.

But the time frame where I took trades with the Donchian Channel indicator was the 30-minute chart.
So, this is what happened when I took 100 trades in the extremely good trending market.
You see, I have been trading for around nine years now.
But I didn’t find out about the Donchian Channels indicator in the beginning stage of my trading journey.
I was trying to figure out what indicators are the best.
Back then, I saw the MACD indicator as the best one and stuck with it the entire time to spot momentum shifts in trending markets.
This Donchian Channels indicator might be even better than that, or at least just as good as the MACD indicator.
You see, many indicators we have tested in this series either spam trades or just give bad setups.
We have only seen a few indicators that actually give a high-quality entry.
Donchian Channels is one of those high quality indicators.
But what makes it even better is that it also shows you a point to set the stop loss.
With other indicators, you have to use something else to figure out the stop loss.
But with Donchian Channels, you can just set it on the other side of the bands.
And that stop loss was actually good because the profit graph was moving nicely in the upward direction.
It won 7 trades in a row and lost 5 trades in a row.
I risk 1% of the account per trade while testing.
With that risk, this strategy managed to make a 50% profit on the account, and without even compounding.
If we had used compounding, the profit would have been even higher.
So, this Donchian Channel strategy is really good.
At the end, it got a 60% win rate.
Since this was with a 1.5-to-1 reward-to-risk ratio.
The break-even win rate is 40%.
So, this 60% win rate is a really high win rate.
The profit graph went upward pretty nicely, with a little bit of a pullback in between.
If you have been watching this testing series, you will know that this is not the highest win rate we have seen a strategy get.
But before we compare this result with other strategies’ results, we need to take 100 trades in the extremely bad market to see what happens.
You see, in a bad market, or a ranging, slow market, the price moves up, down, up, and down quite frequently.
But since this Donchian Channels indicator gives an entry point when the upward momentum gets stronger, many times the price reversed after that entry point in the slow, ranging market.
But that’s what’s supposed to happen in a bad market, right?
The momentum disappears quickly, and the price reverses frequently.
In those market conditions, the Donchian Channels indicator sucked.
The profit graph moved in the downward direction pretty much from the start.
It won 5 trades in a row and lost 12 trades in a row.
It lost 25% on the account without compounding.
At the end, it only got a 30% win rate, which is below the 40% break-even point.
The profit graph is moving in the downward direction like a downtrend.
So let’s give it a TR score, or the Trading Rush score, to see how it actually performs compared to other strategies we have tested so far.
In the previous “mostly good market” test, the Donchian strategy had a 7.5-out-of-10 score in the win rate category.
And overall, it had a pretty high score.
In fact, when it comes to the total TR score, it ranked 3rd from the top.
But in the extremely good market, the Donchian strategy gets a 7.8-out-of-10 score in the win rate category.
For comparison, the highest score in this category is 9 out of 10.
So this 7.8-out-of-10 score is not the highest but is still pretty good.
The easy-to-use score stays the same at 7 out of 10.
But here’s where things get interesting.
You see, the highest-win-rate strategy we have tested in the extremely good market had a low score in the “reliability of trades” category.
This was because one of the reasons it got a high win rate was that it spammed trades and kind of got lucky.
The Donchian Channels indicator didn’t spam trades, so it gets a higher score of 8 out of 10 in the “reliability of trades” category.
This is the highest score in this category, the same as the MACD trading strategy.
Since the profit graph went in the upward direction pretty nicely, it gets a 7-out-of-10 score in the “consistency of profits” category.
The “quality of trades” score is 9 out of 10, which is also the highest score in this category, the same as the MACD strategy.
That brings the total TR score to 38.8, which is the second-highest score from the top.
The MACD and the Donchian Channel indicator got the same 60% win rate in the extremely good market.
They also got the same TR score.
The only other strategy that has a higher TR score so far is the Supertrend indicator.
Because it was extremely simple to use and had a relatively high win rate as well.
But in the extremely bad market, since the Donchian Channel strategy got a low 30% win rate, it gets a 3-out-of-10 score in the win rate category.
This is actually the lowest win rate and score a strategy has achieved in the extremely bad market.
The easy-to-use score stays the same at 7 out of 10.
The reliability and the quality-of-trades score is 3 out of 10.
In the consistency of profits category, it gets a 0 out of 10 because it didn’t make any profit.
That brings the total TR score in the extremely bad market to 16.
This is the lowest TR score a strategy has achieved in the extremely bad market.
The highest score was 19.8.
Furthermore, some of the higher-scoring strategies had a lower probability of blowing up the account, even in the extremely bad market.
Since the Donchian Channel strategy had a 58% win rate in the previous “mostly good market” test, we can say it’s one of the best strategies for a mostly trending market.
In the extremely good trending market, it’s still one of the best and is a high-quality setup strategy you will ever use.
And since it got the lowest win rate we have seen so far in the extremely bad market, you really need to learn how to identify good and bad market movement.
If you don’t, this strategy will blow up your account in the extremely bad market.

Overall, Donchian Channels is one of the best trading strategies I have ever seen in my entire nine years of trading journey.
Thanks for watching.