Donchian Channels

DEFINITION of 'Donchian Channels'

A Donchian Channel is an indicator formed by upper and lower bands around the price bars. The upper band marks the highest price of an issue for n periods while the lower band marks the lowest price for n periods. The area between the upper and lower bands represents the Donchian Channel. Richard Donchian, a career futures trader, developed the indicator in the mid twentieth century to help him identify trends.

BREAKING DOWN 'Donchian Channels'

In this example, the Donchian Channel is the tan shaded area bounded by the upper green line and the lower red line, both of which use 20 days as the band construction period. As price moves up to its highest point in the last 20 days or more, the price bars “push” the green line higher and as price goes down to its lowest point in 20 days or more, the price bars “push” the red line lower. When price decreases for 20 days from a high, the green line will be horizontal and then start dropping after 20 days. Conversely, when price rises from a low for 20 days, the red line will be horizontal for 20 days and then start rising.

RELATED TERMS
  1. Buy a Bounce

    Buy a bounce is a strategy that focuses on buying a given security ...
  2. Price Channel

    A price channel is used in technical analysis to chart the price ...
  3. Channel

    A channel may refer to a distribution system for businesses or ...
  4. STARC Bands

    STARC bands are a type of technical indicator that is created ...
  5. Upper Management

    Executives and other leaders – collectively known as upper management ...
  6. Saucer

    A saucer is a technical charting pattern that forms when a security’s ...
Related Articles
  1. Managing Wealth

    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.
  2. Trading

    The Basics Of Bollinger Bands®

    This strategy has become one of the most useful tools for spotlighting extreme short-term price moves.
  3. Trading

    Organize Price-Band Relationships In Bollinger Bands®

    Bollinger Bands have become an enormously popular market tool since the 1990s but most traders fail to tap its true potential.
  4. Trading

    Trade This High Probability Bollinger Band Pattern (INTC, YHOO)

    Bollinger Band box patterns set up profitable opportunities when trends give way to well organized trading ranges.
  5. Trading

    Using Bollinger Bands to Gauge Trends

    Learn three Bollinger Bands® strategies that can be used for analysis or generating trade signals.
  6. Trading

    Trend Channel Buying Opportunity in These Stocks (ABBV, RTN)

    These stocks are rising within trend channels and flashing a buy signal with the price near channel support.
  7. Trading

    Rising Trend Channel Buying Opportunities

    These two stocks are in long-term rising price channels. Currently trading near support, an upside move indicates another wave higher.
  8. Trading

    Commodity Stocks Still Presenting Buying Signals

    A handful of commodity stocks continue to offer short-term trading opportunities as they move higher within a trend channel.
  9. Trading

    3 Stocks Channeling Higher and In the Buy Zone

    Trending higher overall, and trading near support following a pullback, these stocks are in the buy zone.
RELATED FAQS
  1. How do I create a trading strategy with Bollinger Bands® and the Stochastic Oscillator?

    Learn how to create a trading strategy by combining two different technical indicators, Bollinger Bands and the stochastic ... Read Answer >>
  2. What are some ways to make a distribution channel more efficient?

    Understand what a distribution channel is and how companies use them to move product. Learn how to make a distribution channel ... Read Answer >>
  3. Does investing in sustainable or "green" companies provide lower returns?

    To determine the kinds of returns that can be expected from investments in sustainable or "green" companies, the distinction ... Read Answer >>
  4. How do I create a trading strategy with Bollinger Bands® and the MACD?

    Learn how to establish profitable trading strategies using technical trader favorites such as Bollinger Bands and the moving ... Read Answer >>
  5. Which market indicators reflect volatility in the stock market?

    Learn the most commonly used technical indicators of stock market volatility that are watched by stock market traders and ... Read Answer >>
  6. How do traders and analyst create profitable Swing Trading strategies in forex?

    Learn how to create a profitable swing trading strategy in the forex market using price channels on bullish, bearish and ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center