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Richard Donchian was born in Hartford, Connecticut in 1905 and grew up in a family of successful businessmen. He graduated from Yale University in 1928 with a degree in economics and began his career as an analyst for the brokerage firm Hemphill, Noyes & Co.
In the 1930s, Donchian began trading commodities and futures for his own account and developed a systematic approach to trading, which involved using objective rules for entering and exiting trades. He believed in the importance of using technical analysis to identify market trends and used a variety of technical indicators in his trading, including moving averages and relative strength.
In the 1940s, Donchian founded Futures, Inc., a brokerage firm that specialized in trading commodities and futures for clients. He later founded the Donchian Trading Company, which provided research and education to traders around the world.
Donchian was a proponent of risk management and believed in using stop-loss orders to limit losses. He also emphasized the importance of diversification and believed in investing in a wide range of markets and asset classes.
In addition to his work in the trading industry, Donchian was also a philanthropist and supported a variety of causes, including education and the arts. He passed away in 1993 at the age of 87, but his contributions to the field of trading continue to be studied and used by traders and investors today.
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Richard Donchian: Pioneer of Systematic Trading and Trend Following
Richard Donchian is widely regarded as a pioneer in the field of systematic trading and trend following. As a commodities and futures trader, he developed objective rules for entering and exiting trades and emphasized the importance of risk management and diversification. His work has had a lasting impact on the trading industry, and his ideas and strategies continue to be studied and used by traders and investors today.
One of Donchian's most significant contributions to the field of technical analysis is the development of the Donchian Channel, a technical indicator used to track the price movement of a security over time. The Donchian Channel is formed by taking the highest high and lowest low of a certain period and plotting lines above and below the price chart, creating a channel. The upper line represents the highest high, while the lower line represents the lowest low.
Traders use the Donchian Channel to identify breakouts, which occur when the price breaks through either the upper or lower line of the channel. When a breakout occurs, traders can enter a position in the direction of the breakout and use the opposite line of the channel as a stop loss to manage risk.
Donchian's approach to trading was based on following the trend and managing risk. He believed that by identifying and following long-term trends in the markets, traders could achieve consistent returns over time. He also believed in the importance of diversification, and he was a proponent of investing in a wide range of markets and asset classes.
Donchian's trading philosophy was grounded in a systematic approach to trading, which involved using objective rules and data to make trading decisions. He believed that by removing emotion from the trading process, traders could make more rational decisions and avoid costly mistakes.
Donchian's legacy is evident in the trading strategies and techniques used by traders and investors today. His emphasis on trend following, risk management, and diversification has become a cornerstone of modern trading. The Donchian Channel, which he developed over 70 years ago, remains a popular technical indicator used by traders around the world.
In addition to his contributions to the field of trading, Donchian was also a mentor and educator. He founded the Futures, Inc. brokerage firm and later the Donchian Trading Company, which provided trading education and research to traders around the world.
Richard Donchian was a pioneer in the field of systematic trading and trend following. His ideas and strategies have had a lasting impact on the trading industry, and his legacy continues to inspire traders and investors today. Whether through the use of technical indicators like the Donchian Channel or through his emphasis on risk management and diversification, Donchian's influence on the trading world cannot be overstated.