Richard Davoud Donchian

Richard Davoud Donchian (born September 1905 in Hartford , USA ; † April 1993 ) did pioneering work in the field of systematic securities trading. He founded Futures Inc. in 1948 as a public company. This company allowed for the first time a joint investment in commodity futures - the forerunner of modern managed futures funds. Donchian developed two of the most famous mechanical trading systems of the pre-computer era: The "Weekly Rules", which use a 20-day price breakout as a signal, and the "Donchian 5/20 system", which among other things is based on two simple moving averages of 5 and 20 days based. He is named after the technical indicator Donchian Channel (Engl. Donchian channel ).

biography

Richard Davoud Donchian was born in Hartford, Connecticut in September 1905. His parents, Armenian emigrants, operated a trade in oriental carpets, the Samuel Rug Company . In 1928 , Donchian graduated from Yale University with a bachelor's degree in economics. He first joined his parents' company and began speculating in stocks. In the stock market crash of 1929 he lost most of his investments. In 1933 he became a securities analyst at the Wall Street broker Hemphill, Noyes & Co. A document that is hardly known today comes from this period: "Twenty Trading Guides", created in 1934 for stock trading and modified in 1978 for raw materials by the magazine "Commodities" published, Donchian summarizes general rules of conduct (eg: "LIMIT LOSSES, ride profits") and technical rules for chart-technical recommended entry and exit times, which are still strongly influenced by the vocabulary of the Dow theory.

After the USA entered the Second World War, Donchian first took part in the landing in Sicily and then served as a statistics officer in the Air Force. After the end of the war, Donchian dealt with the commodity markets and in 1948 founded the corporation Futures Inc. , which he opened to investors. In this way, the first vehicle for a collective investment in commodities was created - the blueprint of all future futures funds. From 1961 at the latest, Futures Inc. was managed with a strictly technical-systematic trading approach.

From 1960 Donchian took over the management of the research department for raw materials at Hayden Stone , another New York brokerage house, which was later to merge into the Shearson - Lehman group. In this capacity he wrote a newsletter entitled "Trend Timing Comments", which until 1979 appeared once a week.

At the beginning of the 1970s Donchian tried to buy out the shareholders of Futures Inc., which he succeeded according to the current state of knowledge (see web links) and may have closed the company afterwards. His trading system was continued for him until 1989 by his then assistant Barbara Dixon .

In June 1983, " Managed Accounts Report ", the leading specialist publication for managed futures at the time, presented Richard Donchian with the first "Most Valuable Performer Award" for exceptional achievements in the field of "Commodity Money Management".

Richard D. Donchian died on April 24, 1993, leaving behind the Richard Davoud Donchian Foundation - a charitable foundation that supports projects in the fields of education and health.

plant

Richard Donchian made significant contributions in the field of technical market analysis, particularly regarding the commodity markets. His article "High Finance in Copper" in the November 1960 issue of the Financial Analysts Journal is a frequently cited starting point for various considerations about how commodities can be traded profitably. The text combines deep, fundamental market knowledge with technical chart considerations.

This is where the definition of the indicator later called "Donchian Channel" appears for the first time : These are the borderlines that go through the highest high and the lowest low of the past n days (in the original article: n = 10 days = two weeks) are formed. If the current price breaks one of these two lines, this is seen as confirmation of an upward or downward trend.

In a later version, which was probably published for the first time in 1970 (compare: John Murphy, "Technical Analysis of the Financial Markets", NYIF 1999, p. 215), Donchian generalized this "channel" idea and recommended it for n = 20 Days. This signal generator went down in the specialist literature as "Donchian's Weekly Rules".

The "5/20 trading system" used by Futures Inc. since 1961 was disclosed by Donchian in 1974 in the November issue of the US industry magazine "Futures". In a form cleared of ambiguities, which is suitable as a preliminary stage for a computer program, it was formulated by his colleague Brentin C. Elam and translated into algorithms in the BASIC programming language in 1990 . This version was first published in 2011 by the company magazine FTC Futures.

The most extensive work by Richard Donchian, however, was his weekly "Trend Timing Comments", which until 1979 were used by many commodity traders as an important source of information. These publications were considered lost after the fall of Shearson-Lehman. However, recent research has shown that at least one copy still exists - in the archive of the " Institute for Financial Markets " (IFM) in Washington.

meaning

Richard Donchian has inspired a generation of futures traders. He is considered an incubator of the managed futures industry, whose ideas were taken up and further developed by the stars of the 1980s such as Richard Dennis and Ed Seykota .

Bibliography

• Darrell Jobman: Richard Donchian: Pioneer of Trend-Trading , Commodities (September, 1980).
• Richard D. Donchian: High Finance in Copper , Financial Analysts Journal (December, 1960).
• Richard D. Donchian: Donchian's 5- and 20-day moving averages , Futures (December, 1974).

Web links

• Richard Davoud Donchian Foundation
• The Donchian Puzzle - new knowledge about the 'father of trend following' (PDF; 2.2 MB)