Donchian Channel
A practical explanation of Donchian channels and how they support breakout entries and exits.
A Donchian channel is built from the highest high and lowest low over a lookback period. It provides a simple way to define recent price boundaries.
Channel components
| Component | Meaning |
|---|---|
| Upper channel | Highest high over the lookback window. |
| Lower channel | Lowest low over the lookback window. |
| Middle area | The range between the two boundaries. |
When price breaks the upper channel, a long signal may be triggered. When price breaks the lower channel, a short signal may be triggered.
Why it is useful
The channel is transparent. It does not hide the rule behind a complex indicator. The trader can see exactly what level matters and why.
Common mistakes
Do not treat the channel as support and resistance in a discretionary sense. In this framework, it is a rule boundary. Also avoid switching the window length after a losing period without a documented test.