Definition
Donchian Channels plot the highest high and lowest low over a specified period (typically 20 days). The middle line is the average. Originally used for turtle trading, breakouts above the upper channel or below the lower channel signal potential trend changes. The channel width indicates volatility.
Formula
Upper Band = Highest High of n periods | Lower Band = Lowest Low of n periods
Example
Price breaks above the 20-day Donchian Channel high at $55, triggering a long entry in a trend-following system.
FAQ
What is Donchian Channel?
A channel formed by the highest high and lowest low over n periods.
How do you calculate Donchian Channel?
A common formula for Donchian Channel is: Upper Band = Highest High of n periods | Lower Band = Lowest Low of n periods
Why is Donchian Channel important?
Donchian Channel helps investors evaluate technical analysis and make more informed decisions.