Donchian Channels

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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