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Donchian Channel Width

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Donchian Channel Width is an indicator that displays the width of Donchian Channels. Donchian Channels plot the highest high and lowest low over the last period time intervals.

Donchian Channel Width will plot in a separate pane below the chart, whereas Donchian Channels plot as an overlay on the chart.

Donchian channels are price channel studies that are available on most charting packages and can be profitably applied by both novice and expert traders. Although the application was intended mostly for the commodity futures market, these channels can also be widely used in the FX market to capture short-term bursts or longer-term trends.

Created by Richard Donchian, considered to be the father of successful trend following, the study contains the underlying currency fluctuations and aims to place profitable entries upon the start of a new trend through penetration of either the lower or upper band.

Based on a 20-period moving average (and thus sometimes referred to as a moving average indicator), the application additionally establishes bands that plot the highest high and lowest low.

  • When price closes above the Donchian Channel, buy long and cover short positions.
  • When price closes below the Donchian Channel, sell short and liquidate long positions.

The Donchian Channel indicator is not meant to catch tops or bottoms, only trends. Trend traders may want to extend the standard 4 week period to 8 weeks in order to wait for significant trend signals, while others may shorten the period to a more sensitive 1 or 2 weeks for liquidation purposes.

Parameters:

  • Period (20) - Period considered when determining the channel values.

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