Donchian channels are a technical indicator developed by Richard Donchian a famous commodities and futures trader.
The Donchian channel is a useful indicator of seeing the volatility of a market price.
- If a price is stable, the Donchian channel will be relatively narrow.
- If the price fluctuates a lot, the Donchian channel will be wider.
- Its primary use, however, is to provide signals for long and short positions.
- Donchian Channels are three lines generated by moving average calculations that comprise an indicator formed by upper and lower bands around a mid-range or median band.
- The upper band marks the highest price of a security over N periods
- While the lower band marks the lowest price of a security over N periods.
The area between the upper and lower bands represents the Donchian Channel.