Donchian channels are price channel studies that are available on most charting packages and can be profitably applied by both novice and expert traders. Although the application was intended mostly for the commodity futures market, these channels can also be widely used in the FX market to capture short-term bursts or longer-term trends. Created by Richard Donchian, considered to be the father of successful trend following, the study contains the underlying currency fluctuations and aims to place profitable entries upon the start of a new trend through penetration of either the lower or upper band. Based on a 20-period moving average (and thus sometimes referred to as a moving average indicator), the application additionally establishes bands that plot the highest high and lowest low. As a result, the following signals are produced:
* A buy, or long, signal is created when the price action breaks through and closes above the upper band.
* A sell, or short, signal is created when the price action breaks though and closes below the lower band.
* A buy, or long, signal is created when the price action breaks through and closes above the upper band.
* A sell, or short, signal is created when the price action breaks though and closes below the lower band.
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Donchian Channels.mq4
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