Chan-Donchian Structural Breakout

Family: hybrid · Regime: trending · Complexity: high · Asset classes: Forex, Equities, Indices · Timeframes: H1, H4

Thesis

Market structure transitions (Chan Lun types 2/3) act as lead indicators for trend shifts, but require momentum (ADX) and volatility (Donchian) confirmation to avoid 'fakeouts' within the recursive cycle. By anchoring risk to institutional order blocks, the strategy captures the meat of the move while exiting at a mathematical RR threshold before structural exhaustion.

Components

• Chan Lun Engine (MT4 DLL version) (regime) — Provides the macro-structural context (Regime), specifically identifying 2nd and 3rd type entries which represent structural trend exhaustion or continuation hubs.
• ADX Crossing INGM (direction) — Acts as a momentum filter to ensure the structural signal from Chan Lun is backed by a directional shift in DI+/- strength.
• Donchian Channels (entry) — The tactical trigger; wait for a volatility breakout above/below the N-bar range to confirm momentum is translating into price expansion.
• Risk Reward Indicator Tool (exit) — Standardizes the exit logic using a fixed mathematical ratio based on the distance between the entry and the Order Block-defined stop loss.
• Sonarlab - Order Blocks (risk) — Used for precise stop-loss placement. Order blocks represent the institutional 'origin' of the move; if price returns deep into the block, the breakout thesis is invalidated.

Known failure conditions

• Chan Lun structural labels 'vanish' or shift significantly after entry, indicating a failure in recursive wave counting.
• ADX +DI and -DI repeatedly cross in a tight range (whipsaw), leading to multiple filtered entry attempts.
• Price penetrates the Order Block immediately after Donchian breakout, suggesting a 'bull trap' or lack of institutional follow-through.

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