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The Donchian channel is constructed by taking the highest (maximum from High) and lowest (minimum from Low) prices for the previous period, followed by marking the area between them on the chart.

Donchian recommended using his indicator for daily timeframes with an interval of period=20, while other authors suggest experimenting with the interval by increasing it.

Trading Strategy

The instrument is bought (long positions are opened) when the current maximum of its price exceeds the maximum value of the channel, and sold (short positions are opened) when the current minimum falls below the minimum value of the channel.

Additional ways to use it

Donchian channel is a useful indicator for monitoring market price volatility. If the price is stable, then the Donchian channel will be relatively narrow. If the price fluctuates greatly, the Donchian channel will be wider.

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