| Updated: September 15, 2025Donchian channel
This lesson will cover the following
- Explanation and calculation
- How to interpret this indicator
- Trading signals generated by the indicator
The Donchian channel is a trend-following indicator developed by Richard Donchian. The two outer bands are plotted using the highest high and the lowest low over a specified period, originally 20 days. A third (middle) band can optionally be plotted because it represents the average of the two outer bands.
Within a trending environment, trading signals can be generated as follows:
If the price moves above the upper band of the channel (the 4-week high if the original 20-day period is used), it is a signal to buy.
If the price moves below the lower band of the channel (the 4-week low if the original 20-day period is used), it is a signal to sell.
The main objective is to enter as early as possible on a breakout and ride the trend for as long as possible.
There is another trading approach, a variation of the Donchian system, known as Turtle trading. It was introduced by Curtis Faith in his book ‘Way of the Turtle’. The trading rules are as follows:
A trader should open a long position when the price moves above the 20-day upper boundary of the Donchian channel and close it when the price breaks below the 10-day lower boundary of the channel.
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- Regulation: NFA
- Leverage: Day Margin
- Min Deposit: $100
A trader should open a short position when the price moves below the 20-day lower boundary of the Donchian channel and close it when the price breaks above the 10-day upper boundary of the channel.
A trader may use 25-period and 350-period exponential moving averages as a trend filter. A long position should be taken only if the 25-period EMA is above the 350-period EMA. A short position should be taken only if the 25-period EMA is below the 350-period EMA.
Chart source: VT Trader