Extra indicators
Donchian Channels
The highest high and lowest low of the last 20 candles, with a middle line: a breakout map.
The idea in plain words
If the price makes a new 20-candle high, something has changed. Donchian Channels simply draw the recent extremes, so new highs and lows stand out.
How it is calculated
Upper = highest high of N candles, lower = lowest low, middle = halfway.
Upper = highest high (N)
Lower = lowest low (N)
Middle = (Upper + Lower) ÷ 2 (default N = 20)How to use it
- Breakout: buy a new N-candle high, sell a new N-candle low.
- Use the opposite band (or a shorter channel) as a trailing stop.
Drawing conclusions
- A flat upper band means no new highs: the market is not trending up.
Example
Crude oil breaks above its 20-day high of 82.40; the trend-following rule buys and later exits on a 10-day low.
Prices in examples are illustrative.
Watch out for
- Breakout systems lose often in ranges and make money in the few big trends.
A little history
Richard Donchian pioneered breakout trend following from the 1950s; the famous "Turtle Traders" of the 1980s used Donchian breakouts.
Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.