Donchian channel

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The Donchian channel is an indicator used in market trading. It is formed by taking the highest high of the daily maximums and the lowest low of the daily minimums of the last n days, then marking the area between those values on a chart.

The Donchian channel is a useful indicator for seeing the volatility of a market price. If a price is stable the Donchian channel will be relatively narrow. If the price fluctuates a lot the Donchian channel will be wider. Its primary use, however, is for providing signals for long and short positions. If a security trades above its highest n day high, then a long is established. If it trades below its lowest n day low, then a short is established.

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