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Indicator

Donchian Channel

Identify breakouts and trend initiation using highest high and lowest low extremes — a core systematic trend following tool.

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Key Takeaways

Upper band is the highest high over a defined period.
Lower band is the lowest low over the same period.
Breaks above or below represent new price extremes and potential trend initiation.
Used in systematic trend following strategies including turtle trading and managed futures.
Captures early-stage trend development through range expansion.

What It Measures

Upper band is the highest high over a defined period.
Lower band is the lowest low over the same period.
Breaks above or below represent new price extremes and potential trend initiation.

Institutional Use

Used in systematic trend following strategies including turtle trading and managed futures.
Captures early-stage trend development through range expansion.
Not a reversal tool.

Key Signals

Break above upper band signals potential bullish breakout and trend initiation.
Break below lower band signals potential bearish breakout.
Price contained within channel means no directional edge.
Expanding channel width signals increasing volatility and momentum.

Trading Playbook

Breakout entry: enter on confirmed close beyond channel with volume confirmation.
Trend continuation: hold while price remains outside channel.
Exit when price reverses back inside channel.
Filter false breakouts with ATR and structure analysis.

When Not to Trade

In low-volatility sideways markets.
When breakouts occur on low volume.
During macro news events that create temporary spikes without follow-through.