Coiled Donchian Trend Strategy
Family: breakout · Regime: trending · Complexity: medium · Asset classes: Equities, Forex, Crypto · Timeframes: H1, H4, D1
Thesis
The market exhibits a structural behavior known as volatility clustering, where periods of low volatility (compression) are precursor to explosive trending moves. By using the Donchian Channel as a breakout trigger only when the TTM Squeeze ratio confirms compression, we filter out low-conviction price fluctuations. Aligning these breakouts with long-term (200 SMMA) and medium-term (50 SMA) trend filters ensures that we are entering in the direction of institutional flow, increasing the probability of momentum follow-through.
Components
- Moving Averages (Multi-Method) (regime) — Provides a slow-reacting long-term trend filter to ensure trades are only taken in the direction of the dominant macro regime.
- Simple Moving Average (SMA) (direction) — Acts as a medium-term directional filter to ensure price momentum is aligned with the regime before a breakout occurs.
- Donchian Channels (entry) — Serves as the volatility breakout trigger, capturing price movement beyond recent structural boundaries (local highs/lows).
- Connect MACD (Azullian) (exit) — Provides a momentum-based exit signal to close positions before the trend fully reverses or enters a deep consolidation.
- ATR SL Finder (risk) — Calculates a dynamic volatility-adjusted stop loss to protect capital while allowing for normal market noise.
- TTM Squeeze (Carter Ratio version) (confirmation) — Filters breakouts by requiring a period of volatility compression (squeeze) to exist immediately prior to or during the breakout.
Known failure conditions
- Prolonged period where price oscillates across the 200 SMMA with high frequency (regime death).
- Donchian breakouts consistently fail to trigger MACD momentum expansion (low volatility expansion).
- ATR values shrink to the point where spread/commissions exceed 25% of the average ATR-based stop distance.
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