What It Is
Donchian Channels plot the highest high and lowest low over a set number of periods (default 20), with a midline between them. Created by Richard Donchian — the father of trend following — this is one of the oldest and most respected breakout indicators.
Key insight: The channels represent the actual price extremes, not a statistical calculation. When price breaks above the upper channel, it's making a new high for the period. When it breaks below, a new low. This makes Donchian Channels a pure breakout system.
The famous Turtle Trading system used Donchian Channel breakouts as its primary entry signal. The simplicity is the strength — no complex math, just price doing something it hasn't done in N periods.
Trading Application
Donchian Channels excel as a trend-following system. Buy breakouts above the upper band, place stops at the lower band or midline. The midline (average of upper and lower) acts as a trailing stop for trend riders.
Use shorter periods (10) for aggressive entries and longer periods (20-55) for filtering out noise. Many professional trend followers combine 20-period entries with 10-period exits.
This indicator works best when combined with price action analysis. Never trade indicators alone - always confirm with the chart.
Continue through technical indicators
Compare this reference with related structures and readings before applying it to a live chart.