Donchian Channels

AAA

DEFINITION of 'Donchian Channels'

A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time intervals.

INVESTOPEDIA EXPLAINS 'Donchian Channels'

The Donchian Channel is a simple trend-following breakout system. The signals derived from this system are based on the following basic rules:

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

RELATED TERMS
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  3. Bollinger Band

    A band plotted two standard deviations away from a simple moving ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. 52-Week High/Low

    The highest and lowest prices that a stock has traded at during ...
  6. Hindenburg Omen

    A technical indicator named after the famous crash of the German ...
Related Articles
  1. Trading Strategies

    Is using the Donchian channel more risky or more conservative than using Bollinger Bands®?

    Read about differences between Bollinger Bands and Donchian Channels, and learn why the latter are considered to be a riskier trading tool.
  2. Trading Strategies

    What does it mean when a stock is trading near the Donchian channel, high or low?

    Learn how Donchian channels can be used to spot overbought or oversold positions and how to react to these signals to make a profit.
  3. Trading Strategies

    How are Donchian channels used when building trading strategies?

    Discover how some traders use the Donchian channel method of trend trading, and why Donchian channels work best with a complementary indicator.
  4. Trading Strategies

    What are common technical indicators used along with Donchian channels?

    Learn more about some of the most useful technical indicators that traders and analysts can use in conjunction with Donchian channels.
  5. Technical Indicators

    What are the differences between Bollinger Bands® and Donchian Channels?

    Read about the primary differences between Bollinger Bands and Donchian Channels, two technical price charting tools used by analysts and traders.
  6. Charts & Patterns

    What is the formula for Donchian channels and how is it calculated?

    Discover how technical analysts calculate the formula for the Donchian Channel, a moving average indicator created by Richard Donchian.
  7. Forex Education

    Capture Profits Using Bands And Channels

    Donchian channels, Keltner channels and STARC bands are not as well known as Bollinger bands, but they offer comparable opportunities.
  8. Charts & Patterns

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify patterns.
  9. Technical Indicators

    Why is the 200 Simple Moving Average (SMA) so common for traders and analysts?

    Learn about the 200 simple moving average (SMA), how it is utilized by traders and analysts, and why it is considered to represent major support or resistance.
  10. Trading Strategies

    How do I build a profitable strategy when spotting a Three White Soldiers pattern?

    Learn a simple trading strategy implemented based on the bullish market reversal signal given by the three white soldiers candlestick pattern.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center