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.

BREAKING DOWN '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.

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RELATED FAQS
  1. 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 ... Read Answer >>
  2. 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 ... Read Answer >>
  3. 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 ... Read Answer >>
  4. 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 ... Read Answer >>
  5. Is using the Donchian channel more risky or more conservative than using Bollinger ...

    Read about differences between Bollinger Bands and Donchian Channels, and learn why the latter are considered to be a riskier ... Read Answer >>
  6. 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 ... Read Answer >>
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