His Futures, Inc. fund, founded in 1949, is considered the first publicly managed hedge fund. He is also the developer of the trend trading method used by the Turtle Trading team. Today some commodity traders still use the indicator bearing his name - the Donchian Channel. Here are 9 principles of analysis that helped him bring in millions of dollars for his fund over the course of its life.

1. After a rally, a consolidation (sideways in a range) will usually lead to another rally of equal proportions. After this second rally, we can expect a move against the original trend and drop back to the consolidation zone. Similarly, a consolidation after a drop often leads to another drop of equal proportions. After this second drop, we can also expect a move against the main trend and back into the consolidation zone.


2. A prolonged sideways movement in the previous uptrend marks future resistance. Expect the price to level off or reverse down when the price returns to this level in the subsequent downtrend. Similarly, a prolonged sideways movement after the previous downtrend marks future support. Expect price support or a bullish reversal when the price returns to this level in the subsequent uptrend.

3. Buy when the price retraces to the trendline on medium or low volume. On the contrary, look for selling opportunities when the price approaches the trend line with medium or low volume. Be careful if the price clings around the trendline (hugs the trendline) or if the trendline is touched too often.

4. Be prepared for a break below the uptrend line if the price drops to the trendline, fails to bounce, and crawls along the trendline. Always be prepared for a break above the downtrend line if the price approaches the downtrend line, maintain its upward momentum, and stick along the trend line. The price sustaining around the trendline increases the chances of a breakout.

5. The main trend lines determine the long-term trend, the minor trend lines identify the short-term trend. When the price is above the main (bullish) trendline, use the minor (bearish) trendlines to identify short pullbacks and buy when the price breaks above these trendlines. When the price is below the main (bearish) trendline, use minor (bullish) trendlines to identify short rallies and sell when price breaks below these trendlines.


6. Triangle patterns often break out in their plane. This means that an ascending triangle is usually broken with an upward breakout, while a falling triangle is usually broken down. The "hand chart" must look for clues to determine if a triangle shows signs of accumulation or distribution.

7. Identify peaks in volume as this signals the end of a long trend. A prolonged uptrend usually ends with an increase in volume and can mark a reversal to the downside. Conversely, a prolonged downtrend usually ends with an increase in volume and can mark a reversal to the upside.

8. Not all price gaps are filled. A breakout gap signals the start of a new trend and is usually not filled. Continuation gaps mark the continuation of the current trend and are often not filled. Exhaustion gaps mark trend reversals and are often filled. Chartists should not assume that every gap must be filled unless they can identify the gap, which is easier said than done.

9. In an uptrend, try to add to long positions after "one-day corrections", no matter how small or large the drop is, and especially when the pullback is formed with volume lower. During a downtrend, add in short positions after "one-day rallies", no matter how large or small the rally is, and especially if the rally is on lower volume (correction/recovery). 1-day rollbacks are adjustments that only take place in 1 day, and are deleted the next day).