What is Donchian Channel?
The Donchian channel method is a trading technique invented by Richard Donchian in the 1930s. It is one of the oldest and simplest technical indicators used for trading breakouts, and it is also a type of trend following trading system.
Consisting of 2-3 curves of different colors, this indicator uses the highest price and the lowest price in the period to show the volatility of the market price. When the channel is narrow, it means that the market volatility is small, otherwise the channel is wide, which means that the market volatility is relatively large . The upper line is formed by the maximum value of the intraday high price for the past N days. The lower line is formed by the minimum of the daily lows for the past N days. Sometimes there is a middle line, which is formed by taking the average of the upper and lower lines. Donchian set N to 20 when he invented this method.
donchian channel signal
Donchian Channels are often used as breakout indicators. It provides two main types of breakout signals, one is an upper resistance line or lower support line, and the second breakout signal is a centerline crossover.
The Donchian channel strategy is primarily about taking advantage of underlying trends, so when you enter the market using either of these breakout signals, you will be able to catch almost any new trend in the currency pair. Trend traders usually enter in the direction of the breakout, expecting a strong trend follow-through, resulting in price fluctuations in the trend. Using the Donchian channel, when the price breaks through its upper limit, go long; when the price breaks down its lower limit, go short.
Similar to the Donchian Channel, there are also Bollinger Bands. The index is not in many, but in essence. No matter what kind of trading indicators, I hope you can learn to grasp them well.
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