Elearnmarkets - Financial Market Learning
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Go To Site
  • Login
Elearnmarkets
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Webinars
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Technical Analysis

Learn Trading with Donchian Channel in 5 mins

Elearnmarkets by Elearnmarkets
May 6, 2021
in Technical Analysis, Charts, Patterns & Indicators
Reading Time: 4 mins read
4
9.5k
VIEWS
Share on FacebookShare on TwitterShare on WhatsApp

The Donchian Channel is developed by Richard Donchian.

Donchian Channels are useful in the trending as well as the ranging markets.

This indicator consists of three bands in which the mid-band is an average of the upper and lower channel lines.

The indicator can be used in all time frames, such as intraday or weekly charts and can be applied to forex, stocks, options, or futures markets.

In this blog we will discuss Trading strategies using Donchain Channels:

What is Donchian Channels?

Donchian Channels is a popular indicator that determines volatility in the market prices.

These are created by three lines which are generated by moving average calculations.

This indicator is formed by upper and lower bands around a median band.

The upper band represents the highest price of a security over particular periods say N periods whereas the lower band represents the lowest price of a security over N periods.

The area between the upper and lower bands is the Donchian Channel.

Calculation of Donchian Channel

Donchian Channels is a simple indicator which plots the highest high and lowest low of the last “n” periods.

The “n” periods depend on the trader’s choice, who can select the period according to their trading strategy that ranges from a day, hour and minutes, etc.

The default period is set as 20 days by Richard Donchian which is used by most of the traders.

It does not include the current price bar in its calculation.

For instance, if you want to apply this indicator for over 20 candlesticks, then the bands are calculated based on the 20 prior candlesticks.

Trading with Donchian Channels

One of the ways of using Donchian Channels is to determine the support and resistance levels.

The channels get wider when there are heavy fluctuations in prices and get narrow when prices are relatively flat.

In the below image, you can see that the wider price range is highlighted in red whereas the narrow price range is in green.

Trading with Donchian Channels

Use of Donchain Channels in Trading

It can be used in the following ways:

1. Breakout indicator

Donchian channels are used for identifying the breakout of a stock that helps the traders to take either long or short positions.

When the stock is trading higher than the Donchian channels then traders can take a long position, and book their profits or short the stock if it is trading below the channels

In the image below we have highlighted major breakouts in the daily chart of Adani Power Ltd.:

breakout in adani chart

2. Trading with the Middle Band

The middle band is calculated as the average of the upper and lower bands. This band in Donchian channels is also used as a breakout indicator.

Open a long position when the stock rises above the middle band and short when the stock is trading below the middle band of the Donchian channel as shown below on the daily chart of Adani Power Ltd.:

taking long and short trade using donchain channel

Traders can also use other indicators like MACD, Stochastics, Volume Oscillator to develop their own trading strategies using this indicator.

Key Takeaways

  • Donchian Channel is a popular indicator that determines volatility in the market prices.
  • This indicator is formed by upper and lower bands around a median band.
  • It is used for identifying the breakout of a stock that helps the traders to take either long or short positions.
  • The middle band is calculated as the average of the upper and lower bands. This band in Donchian channels is also used as a breakout indicator.
  • Traders can also use other indicators like MACD, Stochastics, Volume Oscillator to develop their own trading strategies using this indicator.

Happy Investing!

Tags: donchian channelsIndicatorintermediate
ShareTweetSend
Subscribe To Updates On Telegram Subscribe To Updates On Telegram Subscribe To Updates On Telegram
Previous Post

What is Futures and Options (F/O) Trading- A Beginners Guide

Next Post

20 technical indicators you can trust while stock trading in 2021

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Technical Analysis

Understanding Chaikin Money Flow Indicator

August 18, 2022
738
Technical Analysis

Best 25 Technical Indicators that Every Trader Should Know

August 18, 2022
5.4k
Technical Analysis

Trading with Elliott Wave

August 11, 2022
7.1k
relative strength
Technical Analysis

Relative Strength Strategy by Mr Matthew Caruso

August 11, 2022
2.5k

Comments 4

  1. Saleem husain says:
    1 year ago

    Good evening.respected sir/Medam. I wanted learn trading.

    Reply
    • Sakshi Agarwal says:
      1 year ago

      Hi,

      We are glad that you liked our post, please refer to our blog on Basic Toolkit for Stock Market Beginners

      Thank you for Reading!

      Reply
  2. JAIKUMAR MENON says:
    1 year ago

    Very well explaned.

    Reply
    • Sakshi Agarwal says:
      1 year ago

      Hi,

      We are glad that you liked our post.

      Thank you for Reading!

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Facebook-f Twitter Instagram Linkedin-in Youtube Telegram

Download App

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Get Articles On Email

Enter your email address:

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Marketshala
  • Miscellaneous

© 2022 Elearnmarkets . All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Get Elearnmarkets App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars

© 2020 Elearnmarkets All Rights Reserved

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
ELM School

LOVING OUR BLOGS?

Explore more content for free at ELM School.

Start reading & learning from various text-based modules covering all aspects of finance from today!

VISIT ELM SCHOOL