An indicator that traces the highest and lowest prices of a recent period, showing the moment the price leaves its “range so far”.
- Weapon tier
- Advanced
- Slots used
- On chart 3/6
- Created by
- Richard Donchian
Concept
The upper line (Upper) is the highest high of the last 20 candles, the lower line (Lower) is the lowest low, and the middle line (Middle) is halfway between them.
It uses the highest and lowest values as they are, without averaging, so the lines move like stairs. A new high lifts the upper line at once, and when an old high drops out of the period, the line falls in one step.
- Upper
- Lower
- Middle
Charts by TradingView Lightweight Charts™
80 candles with the three Donchian Channel lines and volume. From candle 1 to candle 59 (shaded), no high gets past the upper line and the price drifts down or sideways. At candle 60 (yellow vertical line) the close goes above the previous candle’s Upper line, and after that the upper line climbs like stairs. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
The shading is a stretch with no new high at all, and the yellow vertical line is the candle whose close beat the highest price so far. This chart was picked because the rise continued after the breakout; it is just as common for the price to fall back into the range right after. Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
How it is calculated
Upper = the highest high of the last 20 candles.
Lower = the lowest low of the last 20 candles.
Middle = (Upper + Lower) ÷ 2.
The upper line includes the candle’s own high, so a “breakout” compares this candle’s close with the previous candle’s upper line.
Parameters
| What it sets | Name in the game | Default | Range |
|---|---|---|---|
| Candles searched for the highest and lowest prices | period | 20 | 2 – 200 |
Trading ideas
Breakout: when the close goes above the upper line so far, it is read as the price moving up into a new range. Breakouts that come after a long stretch with no new high draw the most attention. The chart on this page shows that scene. Breaking the lower line is read the other way.
Following a trend: in a rising trend, some traders treat the trend as continuing while the upper line keeps rising, and as turning when the price falls back to the Middle line or the lower line.
Common traps
- When the price moves sideways, “false breakouts” that poke above the upper line and quickly come back are common.
- The lines look only at the highest and lowest prices, so one candle with a long wick can move them a lot. On the day that candle drops out of the period, the line suddenly bends — not because the price moved.
- None of these are sure signals. Read them together with the trend (lesson 2) and volume.
In the game
- “Donchian Channel” is an “Advanced” weapon and uses 3 “On chart” lines (limit 6).
- Together with the two Simple Moving Average lines in the starting setup (2 lines), it uses 5 lines, leaving 1 free.
- The space between the lines is not filled; only the three lines are drawn.
Related indicators and lessons
- Bollinger Bands — An indicator that uses three lines, a moving average in the middle and a band above and below it, to show how much the price is swinging compared with usual.
- ATR — An indicator that shows, in price units, how much a single candle usually moves. It does not say which way; it only measures the size of the swings.
- Envelope — An indicator that draws lines a “fixed percentage” above and below a moving average, to show how far the price has moved away from the average.
- Keltner Channels — An indicator that puts an exponential moving average in the middle and draws two lines above and below it, set apart by the usual daily range (ATR), to show the price’s “normal range”.
- Standard Deviation — An indicator that shows, as a single number, how widely recent closes are scattered around their average. The larger it is, the harder the price is swinging.
- Chaikin Volatility — A volatility indicator that shows, as a % change, how much the gap between each candle’s high and low has been widening (or narrowing) lately.
- 2. Trends and sideways moves