In the past when I hold some Bitcoin during up trend, I successfully employ trailing stop order to cash in profit during reversal. With Donchian channel, I can simulate trailing stop order, by creating sell order only when the price is crossing down the upper mid (75%) of Donchian channel. The mid of Donchian channel is 50%, and the lower mid is 25%. So, if the low Donchian is $300 and high Donchian is $400, the upper mid will be $375.
What to do after the crossing? Assuming that price will move up and down inside Donchian channel without breaking out, then we can start creating Buy Limit order on lower mid or Sell Limit order on upper Mid. So, after selling the coin when the price crossing down the upper mid $375, we set up Buy Limit order at lower mid $325. And when the price cross the limit, the system will automatically execute the buy order. I will then create a Sell Limit order on upper mid $375.
If the assumption was not correct and the price break out of Donchian channel, then we already know what to do in the last post.
Unfortunately, most up trends are not clean. The price hover in the upper Donchian channel, crossing the upper mid several times before breaking up again. This is known to cause loses due to the high transaction fee. Similar situation happens also during the the down trend. Therefore, I devise two counter measures:
- After buying during the upper break up, do not sell until the lower break up happens. This is simulating trailing stop order, but less aggressive. This way, I am hopping that the "stop order" will be executed when the price is stabilized (Donchian channel is narrow).
- Also do not create sell limit order, until we are sure that the price has crossed into the lower Donchian channel taking into account Bitfinex price. Bitfinex price should be lower when you cross down if it is a genuine crossing, not a temporary one. This because price hovering in upper Donchian might actually still in up trend and ready to break up any time.
Having said that, similar counter measure should be applied as well during the break down.
In summary, do not put limit order, when the price is trending and Donchian channel is getting wider. Start putting limit order when the price stabilize, such as when the price is crossing the mid Donchian taking into account Bitfinex price. Buy limit order at lower mid Donchian and Sell at upper mid.
In summary, do not put limit order, when the price is trending and Donchian channel is getting wider. Start putting limit order when the price stabilize, such as when the price is crossing the mid Donchian taking into account Bitfinex price. Buy limit order at lower mid Donchian and Sell at upper mid.
