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look at the donchian channel the donchian channel is a simple yet very versatile technical indicator
the creator of the donchian channel was a renowned trader named richard donchian
the dontian indicator plots two primary lines which are based on the high and low price over
a specified period of time you can also add a middle line which is the average of the upper
resistance line and the lower support line of the donchian channel donchian indicator structure and
calculation upper line of donchian represents the highest price for the last certain numbers of bars
lower line of dantian represents the lowest price for the last certain numbers of bars
center line represents a certain numbers of period high and certain numbers of period low
divided by two donchian channel can help traders identify whether a price movement is likely to
continue or reverse direction the donchian channel is also known as the price channel
and they can help you identify the following gauge the trend market swing highs and lows
support and resistance levels market volatility spotting breakouts the donchian channel indicator
can be used to identify price breakouts above resistance levels and breakouts below support
levels you will have a better understanding of how to identify breakouts using the donchian indicator
however the donchian trading strategy performs best especially in trading markets the donchian
channel accomplishes all the mentioned features by blotting three moving averages or bands that
form a price channel the channel periods are determined by a user-defined period and our
preferred settings for the donchian indicator is 20 periods this means that the donchian channel
will look back for the highest high and the lowest low price over the last 20 candlesticks on your
chart and then plot that value on top of that we also have the median line drawn in the center
the median line is simply the average of the other two donchian lines plotted on the chart
feel free also to backtest different period values to find the best settings for the donchian channel
the donchian indicator is a free pre-built technical indicator that comes free with
most trading platforms the donchian channel will eliminate a lot of the guesswork out of
the equation when trading the markets dante and trading strategy the donchian trading strategy
is an intraday trend following strategy that allows you to profit from the intraday trends
i will share some ideas and trading tricks that day traders and intraday traders can
use to catch runaway markets the main advantage is its ability to spot day trends that have the
potential to continue after the first pullback although the donchian channel might look similar
to the bollinger bands they are different unlike the bollinger bands dante and bands
are calculated using a simple math formula that only uses the recent high and low prices
we're going to break down one trading secret that has never been exposed before
it's easy to understand because it has clear trading rules that everyone can follow and
ultimately benefit from it when we have a trading market that can be encapsulated inside a channel
the market will start to crawl along the upper end of the channel this can lead to a potential
breakout of that channel now let's dive into donchian trading strategy in this video we're
going to look only at the buy side you can use the same rules for a cell trade but in reverse
step number one is of course to attach the donchian channel indicator to your chart preferred
setting 20 periods for the purpose of this example we're going to plot the donchian channel on the
15 minute time frame the preferred donchian channel settings are 20 periods which means
that the channel lines will be calculated based on the price action from the last five hour candles
step number two wait until the price crawls along the upper donchian channel the price should not
go below the middle band during this stage it's quite easy to visualize the crawling along pattern
when the price action touches the upper donchian channel and it stays glued to the upper line
we create the price effect where the price looks like it's crawling along the top donchian line if
you think in terms of supply and demand when the price is crawling along the upper donchian channel
without departing too far away it means there are lots of buyers trying to push the price higher
this eventually leads to the seller capitulating once the breakout happens another characteristic
of the crawling pattern is that during this stage the price shouldn't go below the middle donchian
band note that the closer the price action moves along the upper band the stronger the trend is
if you spot this type of price action then you know this day trend has a big potential
for following through now all we got to do is to outline the rules of our entry strategy
step number three by there are two by entries by one when the price pulls back
to the middle donchian band by two when the price pulls back to the lower donchian band
the channel width gives us a measurement of market volatility
when we have high volatility in the market this will be shown on the chart by wide channel bands
whereas low volatility will be displayed on the chart by a narrow channel like with all technical
indicators the donchian channel can be subject to false signals from whipsaws and sizeable market
swings breakouts are very hard to trade and that is the reason why we prefer to enter on pullbacks
we recommend splitting your trade into two parts as this will give you a better average entry price
the first by order is deployed when the price pulls back to the middle donchian band while
the second by order is deployed when the price retraces all the way to the lower donchian band
our entry strategy will give us the opportunity to implement proper risk management
this entry strategy is a good way of framing a trade so you have a very specific entry point
by sticking to these entry rules you will realize this is not a bad trade to take because you trade
in the direction of the prevailing trend step number four hide your protective stop loss
below the lower donchian band your stop loss can be placed below the lower donchian band
the catch is that you need to move to the left side of the chart and find the first part of the
lower donchian band where it is flat you'll find that often times the donchian channel
will plot perfectly flat lines this can provide us with excellent spots to hide our stop loss
last but not least we also need to define where we take profits
step number five take profit at the end of the day or if you want to ride the trend
the beauty of the donchian trading strategy is that you can apply multiple exit strategies so
you can maximize your profits now that we know that the supply and demand balance is skewed
to the upside we can expect buyers to step in on retracements faster than they have before
this can indicate that we'll have a buy explosion to the upside
this proposed exit strategy is to liquidate your position at the end of the day since we're trying
to take advantage only of the intraday trends we don't want to have any overnight exposure
note that in this video we saw an example of a by trade using donchian channel strategy use the
same rules for a cell trade but in reverse thanks for watching hope you guys have enjoyed the video
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