Donchian Channel

Donchian Channel indicator for NT8

The Donchian Channel indicator pursues a trend-following approach and was originally developed by Richard Donchian. With the default option, the Donchian Channel lines will be calculated from the highest high and lowest low over the lookback period. Our Donchian Channel indicator also allows for calculating the channel lines by using the Open, Close, Typical, Median or Weighted price. The indicator is then used to identify  breakouts to either one side of the channel lines.

Indicator Description

Our Donchian Channel indicator comes with a trend filter. The default trend definition is determined by a breakout to either side. A blue plot indicates that the highest high of the lookback period has been broken whereas a red plot indicates a break of the lowest low. A neutral trend, as indicated by a yellow plot, occurs when the price retraces beyond the channel midline. The main concept of the indicator is not to predict price movements, but simply to follow them. Accordingly, our version also come with fast, slow and composite trend definitions.

The Donchian Channel indicator and the Turtle Traders:

The Donchian Channel indicator and was famously used by the Turtle Traders in their system. The system was conceived by commodities trader Richard Dennis and his long-time friend Bill Eckhardt. They disagreed on whether great traders are born or made. Eckhardt was convinced that certain a “trader type” character was the determining factor. Dennis thought trading was a skill that could be taught. In order to find out, they advertised for trading apprentices and trained a group of about 23 people with no prior trading experience.

The group learned the rules of a simple trend following system over the course of 2 weeks. Upon demonstrating that they could follow the rules, participants were funded between $200K and $2 million, trading a range of commodities, currencies, and bond markets. When the experiment ended five years later, the Turtles had reportedly returned a profit of $175 million making it the most famous experiment in trading history.

Other Library Indicators

You may increase the probability of locating profitable Donchian Channel indicator setups by using Volume Analysis and avoiding entries that run into key support / resistance levels. A Donchian Channel strategy was discussed in our Indicator Spotlight and a separate issue looked at Fibonacci Retracement Levels. A variety of Support / Resistance indicators are available from the Session Tools and Fibonacci indicators categories, including the Current Day Fibonacci Levels / Prior Day Fibonacci Levels, Current Week Fibonacci LevelsPrior Week Fibonacci Levels, the Current Month Fibonacci LevelsPrior Month Fibonacci Levels and the Current N Month Fibonacci LevelsPrior N Month Fibonacci Levels . Finally, the Better Volume indicator and a momentum oscillator, such as the Fast Stochastics, Slow RSI or the Connors RSI can be used to further validate reversal setups.

The Donchian Channel indicator is available for NinjaTrader 8.