Donchian Kênh Indicator (Donchian Channels)

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Donchian Channel Indicator – indicator for MetaTrader 4

Author:

Donchian Channel indicator is originally designed by Richard Donchian. The indicator can capture the price movement and the price trend decently. There is only one parameter to set manually, the number of previous trading sessions, or bars, which has a default value of 20. The highest high, the lowest low and their mean value is calculated which indicates the current support and resistance levels. One can use this indicator to develop his/her own scalping strategy. In the following figure, there is an example how to spot a SELL signal for scalping purposes:

As soon as the current candle is closed such that its highest high touches the upper band of Donchian Channel (Red Line), open a SELL position.

DONCHIAN, bro, lol, not Doncian or Donchain or Donkeychain or donkeykong. :P

But good info, thx :)

evillive :
DONCIAN, bro, not Donchain ;)

Richard D. Donchian was a well-respected Wall Street technician who began his career in 1930. He initially compiled his Trading Guides in 1934 after suffering losses in 1929. He later dug them up again while working for Hayden Stone and reviewed them in the firm’s July 3, 1974, “Trend Timing” commodity letter. In that publication, Donchian noted which points he felt remained the most important: General 1,2,3,4 and 5 and Technical 1, 4,5 and 9.

Donchian’s General Guides
1 Beware of acting immediately on widespread public opinion. Even if it is correct, it will usually delay the move.
2 From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3 Limit losses and ride profits, irrespective of all other rules.
4 Light commitments are advisable when a market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting, and concentration on these moves to the virtual exclusion of others will prevent unprofitable whipsawing.
5 Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
6 Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, limit losses and take positions from certain formations such as triangular foci. Stop orders are apt to be more valuable and less treacherous if used in proper relation to the chart formation.
7 In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons; a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
8 In taking a position, price orders are allowable. In closing a position, use “market” orders.
9 Buy strong-acting, strong-background commodities and sell weak ones subject to all other rules.
10 Moves in which rails lead or participate strongly are usually worth following more than moves in which rails lag.
11 A study of the capitalization of a company, the degree of activity of an issue and whether the issue is a lethargic truck horse like Consolidated Edison or a spirited, volatile race horse like Case Threshing Machine is fully as important as a study of statistical reports.

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Donchian’s Technical Guides
1 A move followed by a sideways range often precedes another move of almost equal extent in the same direction of the original move. Generally, when the second move from the sideways range has run its course, a countermove approaching the sideways range may be expected.
2 Reversal or resistance to a move is likely to be encountered on reaching levels at which
commodity has fluctuated for a considerable length of time within a narrow range in the past or on approaching previous highs or lows.
3 Watch for good buying or selling opportunities when trendlines are approached, especially on medium or dull volume. Be sure such a line has not been adhered to or hit too frequently.
4 Watch for “crawling along” or repeated bumping of minor or major trendlines and prepare to see such trendlines broken
5 Breaking of minor trendlines counter to the major trend gives most other important position-taking signals. Positions can be taken or reversed on stops at such places
6 Triangles of either slope may mean either accumulation or distribution depending on other considerations, although triangles are usually broken on the flat side.
7 Watch for volume climax, especially after a long move.
8 Don’t count on gaps being closed unless you can distinguish among breakaway gaps, normal gaps and exhaustion gaps.
9 During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.

His work with channels was incorporated into the Turtle Trading methods.

Donchian Channels Definition

What are Donchian Channels?

Donchian Channels are three lines generated by moving average calculations that comprise an indicator formed by upper and lower bands around a mid-range or median band. The upper band marks the highest price of a security over N periods while the lower band marks the lowest price of a security over N periods. The area between the upper and lower bands represents the Donchian Channel. Career futures trader Richard Donchian developed the indicator in the mid-twentieth century to help him identify trends. He would later be nicknamed “The Father of Trend Following”.

Key Takeaways

  • The indicator seeks to identify bullish and bearish extremes that favor reversals as well as breakouts, breakdowns and emerging trends, higher and lower.
  • The middle band simply computes the average between the highest high over N periods and lowest low over N periods, identifying a median or mean reversion price.

The Formula for Donchian Channels Is:

How To Calculate Donchian Channels

Channel High:

  1. Choose time period (N minutes/hours/days/weeks/months).
  2. Compare the high print for each minute, hour, day, week or month over that period.
  3. Choose the highest print.
  4. Plot the result.

Channel Low:

  1. Choose time period (N minutes/hours/days/weeks/months).
  2. Compare the low print for each minute, hour, day, week or month over that period.
  3. Choose the lowest print.
  4. Plot the result.

Center Channel:

  1. Choose time period (N minutes/hours/days/weeks/months).
  2. Compare high and low prints for each minute, hour, day, week or month over that period.
  3. Subtract the highest high print from lowest low print and divide by 2.
  4. Plot the result.

What Do Donchian Channels Tell You?

Donchian Channels identify comparative relationships between current price and trading ranges over predetermined periods. Three values build a visual map of price over time, similar to Bollinger Bands, indicating the extent of bullishness and bearishness for the chosen period. The top line identifies the extent of bullish energy, highlighting the highest price achieved for the period through the bull-bear conflict. The center line identifies the median or mean reversion price for the period, highlighting the middle ground achieved for the period through the bull-bear conflict. The bottom line identifies the extent of bearish energy, highlighting the lowest price achieved for the period through the bull-bear conflict.

Example of How To Use Donchian Channels

What are Donchian Channels?

In this example, the Donchian Channel is the shaded area bounded by the upper green line and the lower red line, both of which use 20 days as the band construction (N) periods. As price moves up to its highest point in the last 20 days or more, the price bars “push” the green line higher and as price goes down to its lowest point in 20 days or more, the price bars “push” the red line lower. When price decreases for 20 days from a high, the green line will be horizontal and then start dropping. Conversely, when price rises from a low for 20 days, the red line will be horizontal for 20 days and then start rising.

The Difference Between Donchian Channels and Bollinger Bands

Donchian Channels plot the highest high and lowest low over N periods while Bollinger Bands plot a simple moving average (SMA) for N periods plus/minus the standard deviation of price for N periods X 2. This results in a more balanced calculation that reduces the impact of big high or low prints.

Limitations of Using Donchian Channels

Markets move according to many cycles of activity. An arbitrary or commonly used N period value for Donchian Channels may not reflect current market conditions, generating false signals that can undermine trading and investment performance.

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