Donchian Channels Explained - Better than Bollinger Bands and Keltner Channels? with David Moadel
welcome to looking at the markets with
David Modell today I'm going to give you
an indicator that is similar to
Bollinger Bands & Keltner channels but a
little bit different it is the dungeon
channels and I'm on trading view calm
right now and to get there you can go to
trading view if you want to or you can
use your own platform click on
indicators go down and there they are
don't she enchants and you can put them
up these standards setting is 20 and
that means that the look-back period is
20 periods or 20 candlesticks but you
could always change that but we'll just
keep it on the standard setting for now
and so what it does is it looks back at
the last 20 periods or candles in this
case it's a daily candlestick chart and
so it's looking back at the last 20 days
you could also use this with the one or
two or 5-minute candlestick chart if
you're a day trader if you're a swing
trader the daily chart should be just
fine if you're long-term you can use the
weekly monthly chart whatever you like
alright so I'm using the daily
candlestick chart and this is for
Netflix stock and I've got the don't
Jian channel on the 20 period settings
and it looks a lot like the Bollinger
Bands or Keltner channels except you've
got these weird-looking flat parts right
notice that it's perfectly horizontal in
some places kind of strange if you're
not used to it but much like the
Bollinger Bands and Keltner channels
it's kind of an envelope type of thing
where it contains
the candlesticks pretty well and
sometimes it works perfectly sometimes
just like the Bollinger Bands and the
Keltner channels sometimes it bounces
right off of it alright and then
sometimes it hits and then just keeps
going so it doesn't work perfectly
alright but let's talk about what these
three bands mean just like with the
Bollinger Bands and Keltner channels
you've got the lower channel or band
I'll call them bands because we're
probably used to calling them bands from
the Bollinger Bands
you got your lower band your upper band
midline or centerline and that's fine so
the all right let's start with the top
one the upper line here or upper band is
the high the highest price of the
look-back period so right now it's 20
ants daily candlestick chart so this
upper band the upper line here tells you
the highest price that Netflix has
reached in the last 20 days the last 20
candlesticks okay and the lower line the
lower band here as you might guess is
the low the lowest price of the last 20
days or whatever look-back period you
choose all right so you've got the
20-day high up here and the 20-day low
down here and the mid line the center
line is just the average so you take the
20-day high and the 20-day low add them
up divide by two that's your center line
simple as that okay and so that's how
it's possible to have these perfectly
flat horizontal lines that you don't see
in Bollinger Bands or Keltner channels
too much all right because if you think
about it
since this is the high okay this is the
highest price of the last 20 days and
let's say that the candlesticks don't
really wobbly at much let's say they
don't move around that lunch then if the
highest price the last of the last 20
days is up here and then some days pass
the days go by but the highest price of
the last 20 days might not change
especially if you don't see these
candlesticks marking new highs right and
so if the highest price of the last 20
days doesn't change all this time then
you're going to have a flatline until
the highest price the last 20 days does
change as time passes it might go down
if there are no new highs for a long
time but then when the candles start
hang out to the upside and you start
getting new high priced prices of the
last 20 days then this line is going to
stop being so flat and it's gonna start
going up with new high high marks high
prices okay and we've got a here's an
example of a lower line a lower band if
you want to call it that that's flat but
again if you don't see any no if you
don't see any new lows then the lowest
price of the last 20 periods might
remain the same okay until 20 days pass
20 periods pass and the low might go up
if you don't see any no no if you don't
see any new lows of the last 20 days
then this lower line might start to
creep up okay and then go flat for a
while
alright and it won't it won't go down
until you until it starts printing new
lows of the last 20 periods like here
and so it really takes a bigger move to
push the lower band down or the upper
band if you have to start seeing some
new highs is what it takes
alright so that's what it is that's why
it's not as curvy as let's say the
Bollinger Bands because the Bollinger
Bands are going to print a morula bands
are more like averages where it's
printing and slightly new and slightly
different average everyday but with this
one you're going to have some flat
periods because it's not printing a new
high of the last 20 days every day or a
new low of the last 20 days every day so
that's the best way I can explain why
there are these flat things here in the
dungeon channels alright so how can you
use it well I actually saw on somebody
else's YouTube video I'm not gonna
mention any names
but this person recommended that when
the candlestick goes below the center
line here that's a signal to go short or
consider going short
and when the candlesticks break above
the center line the midline here that's
a possible signal to go long personally
I tend to disagree with that I view
these a lot like the Bollinger Bands and
Keltner channels I'm more of a
contrarian trader and investor I'm not
likely to buy something at a high price
or short something or sell it at a low
price I'd rather buy something at a
lower price and so I tend to treat these
more like the Bollinger Bands I know
they're not the same as the Bollinger
Bands but that's how I tend to view them
and so we could view the lower line here
as an oversold indicator or a buy signal
if it hits that or if it pierces the
lower line here okay and we can see it's
not really going to pierce through it
here if you look at the candles
carefully you see they're not busting
through that top line like they do with
Bollinger Bands & Keltner channels you
kind of have to treat it differently
it's more of a touch thing than in
actual busting through it but we could
still view the touching of the upper
line here as a possible overbought
signal and the touching of the lower
line here is a possible oversold or or
buy signal here and so just like with
Bollinger Bands you can buy at the lower
band and then sell it when it reaches
that upper band with the Bollinger Bands
and Keltner channels I have a tendency
not to use the mid line that much and I
don't use it here that much either
anyway this is my interpretation and
just like with the Bollinger Bands and
the calendar channels it doesn't work
all the time there are times when it
does not work so well we can see it
worked pretty well here if you had
bought here when it touched and then
sold here when it touched up here you
would have made a pretty pretty good
profit here on Netflix on the other hand
there are times when it touches that
lower band and then just just kind of
waterfalls just kind of keeps cascading
downward from there and so don't expect
it to be perfect
but you can add it to your arsenal some
people say that you can add the average
true range and use it with this with the
don't she don't she channels you can
that's a possibility it's up to you how
you use it
but I kind of like it as an interesting
and rather unusual looking alternative
to Bollinger Bands & Keltner channels
you have to decide for yourself what
you're going to do and how you're going
to interpret these indicators alright I
hope you enjoyed this this was just a
basic introduction to the don't change
annals if you enjoyed it please give
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email me anytime my email address is
David Modell at gmail.com thank you so
much for watching and listening I'll
talk to you again soon