Definition
Donchian Channels plot the highest high and lowest low over a specified period (typically 20 days). The middle line is the average of these extremes. Used in trend-following systems like the Turtle Trading strategy for breakout signals.
Formula
Upper = Highest High over n periods
Lower = Lowest Low over n periods
Middle = (Upper + Lower) / 2
Example
Over 20 days, if the highest high was $55 and lowest low was $45, upper band is $55, lower is $45, middle is $50. A break above $55 signals a potential long entry.
FAQ
What is Donchian Channels?
Channels showing the highest high and lowest low over a period.
How do you calculate Donchian Channels?
A common formula for Donchian Channels is: Upper = Highest High over n periods Lower = Lowest Low over n periods Middle = (Upper + Lower) / 2
Why is Donchian Channels important?
Donchian Channels helps investors evaluate technical analysis and make more informed decisions.