Donchian Channels

Donchian Channels is a trend-following volatility indicator developed by Richard Donchian, the "father of trend following." It creates a channel using the highest high and lowest low over a specified period, with a middle line at the average of the two. Donchian Channels are the foundation of the famous Turtle Trading system and are widely used for breakout trading strategies.

Donchian Channels are calculated using simple highest/lowest values:

Upper  = Highest High over N periods
Lower  = Lowest Low over N periods
Middle = (Upper + Lower) / 2

Where N is the lookback period (default 20). The channel automatically adjusts as new highs or lows are established.

• Pure price action — Based entirely on actual highs and lows, no mathematical smoothing
• Breakout system — New channel highs/lows automatically signal breakouts
• Channel width = volatility — Wider channels indicate higher recent volatility
• Turtle Trading foundation — The basis of one of the most famous trading systems ever

Buy signals

• Price breaks above the upper Donchian Channel (new N-period high)
• Price crosses above the middle line from below (momentum shift)
• Channel contracts then price breaks upper band (volatility expansion breakout)

Sell signals

• Price breaks below the lower Donchian Channel (new N-period low)
• Price crosses below the middle line from above (momentum shift)
• Channel contracts then price breaks lower band (volatility expansion breakout)

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | Number of candles for highest high / lowest low |

| Component | Description | |-----------|-------------| | DONCHIAN_UPPER(20) | Upper channel (highest high) | | DONCHIAN_LOWER(20) | Lower channel (lowest low) |

| Condition | Description | |-----------|-------------| | close > DONCHIAN_UPPER(20) | New 20-period high (bullish breakout) | | close < DONCHIAN_LOWER(20) | New 20-period low (bearish breakout) | | close cross_over DONCHIAN_UPPER(20) | Breakout above channel | | close cross_under DONCHIAN_LOWER(20) | Breakdown below channel |

• The classic Turtle system used 20-period Donchian for entries and 10-period for exits
• Donchian breakouts work best in trending markets and produce false signals in ranges
• Use ATR-based position sizing alongside Donchian breakouts for proper risk management
• The middle line serves as a useful trend filter — above it is bullish, below is bearish
• Compare with Keltner Channels: Donchian is more reactive, Keltner is smoother
• Consider using a shorter Donchian Channel for exits to lock in profits faster