Donchian Channels
Overview
Donchian Channels plot the highest high and lowest low over a specified period, forming a simple but effective volatility envelope and breakout system that powered the legendary Turtle Trading strategy. They are widely used in forex and crypto for trend-following breakout strategies. Compare Donchian Channels with Bollinger Bands and Keltner Channels in our indicator guide library.
How It Works
Upper Channel = highest high over N periods. Lower Channel = lowest low over N periods. Middle Line = (Upper + Lower) / 2. Default period is 20. Price breaking above the upper channel signals a potential new uptrend; breaking below the lower channel signals a potential downtrend.
Key Signals
- Price breaking above the upper channel = bullish breakout signal.
- Price breaking below the lower channel = bearish breakout signal.
- Narrow channels indicate low volatility and a potential explosive move.
- The middle line acts as a dynamic support/resistance and trend filter.
Common Mistakes
- Using Donchian breakouts in range-bound markets — they work best in trending environments.
- Not using a re-entry rule when price whipsaws back inside the channel.
- Ignoring the middle line as a trailing stop or trend-bias filter.
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