Fakey Donchian Forex Trading Strategy

The fakey Donchian forex trading strategy is a combination of the fakey price action pattern in addition to the Donchian Bands and volumes MT4 indicators. The fakey price action consists of three or more candlestick price patterns, starting off with the inside bar pattern following by a false breakout.

The Fakey pattern is essentially a false breakout from an inside bar pattern, where the false break can be a pin bar or a two-bar price pattern (with the first bar closing outside the mother bar or inside bar range, while the bar that follows it closes within the range of the inside bar or mother bar.

Chart Setup

MetaTrader4 Indicators: Donchian Bands.ex4 (default setting), Volumes (default setting)

Preferred Time Frame(s): 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours

Recommended Trading Sessions: Any

Currency Pairs: Any

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Buy Trade Example (Click the picture for full size view)

fakey-donchian-forex-trading-strategy

Fig. 1.0

Strategy

Long Entry Rules

Place buy entries if the following chart or indicator patterns are in display:

  1. If a bullish Fakey pattern forms i.e. an inside bar plus a false breakout, enter a buy as shown on Fig. 1.0 when price breaks above the inside bar or mother bar (in this case it was an inside bar). Fig. 1.0 depicts a Fakey with pin bar.
  2. If price trades above the middle green line of the Donchian Bands custom indicator, it is indicative of a bullish trend or supports a bullish sentiment. The Donchian Bands contracted for a while before seeing price break out.
  3. The Volumes MT4 indicator forms a green vertical bar that obviously dwarfs other bars and if this bar appears within a contracting Donchian Bands, then it supports a bullish trend (green bar).

Stop Loss for Buy Entry: Place stop loss below support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit on position(s) if the following chart/indicator pattern forms:

  1. If a reversal price action pattern forms (refer to our price action trading strategies for more reversal patterns), exit or take profit accordingly.
  2. If price closes below the middle green line of the Donchian Bands as shown on Fig. 1.0, an exit or take profit is advised.
  3. When the bars of the Volumes MT4 indicator becomes shorter, it indicates decreasing trade volume, thus prompting the need to stay off trades i.e. exit or take profit.

Sell Entry Rules

Enter short position(s) if the following rules or conditions holds sway:

  1. If a bearish Fakey pattern forms i.e. an inside bar plus a false breakout, place a sell entry when price breaks below the inside bar or mother bar.
  2. If price trades below the green middle line of the Donchian Bands custom indicator, it indicates a sell.
  3. If the red vertical bars of the volumes indicator becomes taller, it is a sign of increasing bear volumes.

Stop Loss for Sell Entry: Place stop loss above resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following conditions or rules are visible on the activity chart:

  1. If a reversal price action pattern forms (refer to our price action trading strategies for more reversal patterns), exit or take profit accordingly.
  2. If price closes above the middle green line of the Donchian Bands, an exit or take profit is advised.
  3. Decreasing red bars of the Volumes indicator indicates reducing sellers pressures i.e. an exit or take profit is needed.

fakey-donchian-forex-trading-system

Fig. 1.1

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About The Trading Indicators

Created by Richard Donchian, the Donchian Bands is deployed in the FX market as a tool to capture short-term bursts or trends in the longer-term.

The Volumes MT4 indicator is deployed in determining investors’ interest in the market. High volumes are suggestive of a possible start of a new trend, while low volume depicts lack of trader’s interest in the market.

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