Donchian Channels Indicator – Technical Analysis – Stocks

Description
What is Donchian Channels indicator?
The Donchian Channels (DC) indicator was created by the Richard Donchian who is known as The Father of Trend Following. (Res: Wikipedia)


Donchian channels are a measure of the volatility of the stock price. As this is a banded indicator, there is an upper line and lower line that serve as the boundaries of the channel. A middle channel line is also displayed.


How to calculate the Donchian Channels indicator?
The only input parameter for this indicator is the Length which defines the number of periods to look in history. A 20-day period is the most used and here is how the three-channel lines are calculated for each day.
Upper Channel = 20 Day High price
Highest High price for the past 20 days including today
Lower Channel = 20 Day Low price
Lowest Low price for the past 20 days including today
Middle Channel = (20 Day High Price + 20 Day Low Price)/2


Trading Signals
A potential trading signal strategy using the Donchian Channels is listed below.
There is no golden rule or a rule that works all the time. Otherwise, everyone will use that rule and make a lot of money easily. 😊
1. If the High price moves touches the Upper channel Line, then a Buy signal is generated.
2. If the Low price moves touches the Lower Channel line, then a Sell signal is generated.


How to create Donchian Channels Indicator?
The template will help you create the Donchian Channels automatically and also calculate the trading signals instantly for any stock.
Type in a stock.
Period
The template can pull up to 5 years of price history by default. You can choose how much history to display on the chart easily using the slicer buttons.
Interval
The template allows price history at 3 different intervals.
Input Parameter - Length

Length: You can type in a length in periods. For example, in the above screenshot, we have entered 20 periods.
The chart will update automatically based on all the above inputs.
Signals
The template shows the buy and sell signals on the chart.
In addition, if the latest day has a Buy or Sell signal, it is displayed on the top next to the current price.