Volatility Indicators

Donchian Channels

Donchian Channels consist of three lines: an upper band (highest high), a lower band (lowest low), and a median line. It helps identify breakouts and market volatility.

Dynamic Chart Demo

Indicator Line Price

* This chart uses synthetic data to demonstrate the indicator's behavior in typical market conditions.

Core Usage

Breakout Trading: Entering when price breaks the upper or lower bands.

Trend Following: Staying in a trade as long as price stays on one side of the median.

Volatility Measurement: Wider channels indicate higher volatility.

Advantages

Easy to visualize breakouts
Captures major trends
Objective logic

Limitations

Can be late to exit
Noisy in ranges
Simple calculation may lack depth

Calculation Logic

Upper = Highest High over the last n periods, Lower = Lowest Low over the last n periods, Median = (Upper + Lower) / 2

Understanding the mathematical logic behind indicators helps you interpret signals more accurately and avoid misuse in unsuitable market environments.

Common Trading Strategies

Strategy 1

Turtle Trading Strategy

A famous trend-following system based on 20-day and 55-day Donchian breakouts.

Illustrative example

BUY

SELL

4 signals · Turtle Trading Strategy

Buy

Sell

Strategy 2

Median Line Add-On

In an established trend, treat the median line as dynamic support (uptrend) or resistance (downtrend) and add to a winning position when price pulls back to it without closing through.

Illustrative example

BUY

SELL

3 signals · Median Line Add-On

Buy

Sell

Best For

"Breakout and trend traders."

Note: Technical indicators are mathematical calculations based on historical price and volume. They should be used as part of a comprehensive trading system, not as a standalone entry signal.

Build System with Donchian Channels

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