Donchian Channel
The Donchian Channel plots the highest high and lowest low over a set period, forming bands that expand with volatility and contract when the market is calm.
Traders use it to gauge momentum. Price near the middle of the channel suggests low volatility and no clear trend. A move toward the upper band points to bullish momentum, while drifting toward the lower band signals bearish momentum. Based on this, traders may open long positions near the top or short positions near the bottom.
For example, if Infosys stays in the middle of its Donchian Channel for weeks, traders may wait for direction. As it moves closer to the upper band, it can be read as growing bullish strength, while sliding toward the lower band may suggest bearish pressure.
Parameter | Description | Default Value |
---|---|---|
Window | Number of periods for the channel | 20 |