| Donchian Channels were developed by Richard Donchian, a successful trader and author of the book "Trend Following." They are sometimes referred to as price or volatility channels, similar to other channel-based technical analysis tools such as Bollinger Bands and Keltner Channels. Donchian Channels are used to identify potential support and resistance levels and are based on measuring an asset's high and low prices over a specified period and plotting them as a channel around the current price. The channels consist of three lines: the Upper Donchian, the Lower Donchian, and the Middle Donchian. The Upper Donchian represents the highest high over the specified period, while the Lower Donchian represents the lowest low. The Middle Donchian is the midpoint between these lines. Traders who use Donchian Channels usually look for price movements that approach or cross the Upper or Lower Donchian. They may use the channels to identify potential breakouts or breakdowns in the market and possible entry and exit points for trades. |
