Donchian Channel Calculator
Calculate Donchian Channel upper and lower bands based on N-period highs and lows. Enter values for instant results with step-by-step formulas.
Formula
Upper = Highest High(N) | Lower = Lowest Low(N) | Middle = (Upper + Lower) / 2
Where N is the lookback period (typically 20). The upper band is the highest high price and the lower band is the lowest low price observed over the last N periods. The middle line is the simple average of the upper and lower bands.
Worked Examples
Example 1: Basic Donchian Channel Calculation
Problem: Over the last 20 periods, the highest high was 163 and the lowest low was 148. Current price is 160. Calculate the Donchian Channel levels.
Solution: Upper Channel = Highest High (20 periods) = 163.00\nLower Channel = Lowest Low (20 periods) = 148.00\nMiddle Line = (163.00 + 148.00) / 2 = 155.50\nChannel Width = 163.00 - 148.00 = 15.00\nChannel Width % = (15.00 / 155.50) x 100 = 9.65%\nPosition = ((160 - 148) / 15) x 100 = 80.0% (upper zone)
Result: Upper: 163.00 | Middle: 155.50 | Lower: 148.00 | Price at 80% of channel (upper zone)
Example 2: Turtle Trading Entry Signal
Problem: 20-period Donchian upper channel is at 163. Price closes at 163.50. 10-period lower channel is at 155. Evaluate the Turtle Trading signal.
Solution: Price (163.50) > Upper Channel (163.00) = New 20-period high\nTurtle System 1 Entry: Long entry triggered\nExit channel (10-period lower) = 155.00\nRisk per unit = 163.50 - 155.00 = 8.50 points\nIf ATR = 4.00, position size = Account Risk / (ATR x Dollar per Point)\nThe exit will trail up as the 10-period low rises
Result: Long Entry Signal at 163.50 | Exit at 10-period low (155.00) | Risk: 8.50 points per unit
Frequently Asked Questions
What is the Donchian Channel and who created it?
The Donchian Channel was created by Richard Donchian, who is widely regarded as the father of trend following. The indicator consists of three lines plotted on a price chart: the upper band showing the highest high over the last N periods, the lower band showing the lowest low over the last N periods, and a middle line that is the average of the upper and lower bands. Donchian developed this indicator in the 1930s and 1940s, making it one of the oldest technical indicators still in widespread use today. The standard setting uses 20 periods, which represents approximately one month of trading days. Its simplicity is its strength, as it clearly identifies the price range and potential breakout levels.
How is the Donchian Channel calculated?
The Donchian Channel calculation is straightforward compared to many other technical indicators. The Upper Band equals the highest high price over the last N periods, where N is typically 20. The Lower Band equals the lowest low price over the last N periods. The Middle Line equals the average of the Upper and Lower bands, calculated as (Highest High + Lowest Low) divided by 2. Unlike moving averages which use all prices in the lookback window, Donchian Channels only care about the single highest high and single lowest low. This means one extreme candle can define an entire channel boundary until it falls outside the lookback window, at which point the channel will contract or shift.
What is the Turtle Trading system and how does it use Donchian Channels?
The Turtle Trading system was a famous trend-following strategy taught by Richard Dennis and William Eckhardt in their 1983 experiment to prove that trading could be taught. The system uses Donchian Channels as its primary entry and exit mechanism. Entry signals occur when price breaks above the 20-period upper channel (buy) or below the 20-period lower channel (sell short). Exit signals use a shorter 10-period Donchian Channel, where long positions are closed when price touches the 10-period lower channel. Position sizing is based on the ATR to normalize risk across different instruments. The Turtles reportedly turned a combined $1.6 million into over $100 million in just a few years using this systematic approach.
How do you identify breakouts using Donchian Channels?
A Donchian Channel breakout occurs when price moves beyond the upper or lower channel boundary, representing a new high or low for the lookback period. A bullish breakout happens when price closes above the upper channel, signaling that buyers have pushed price to a new N-period high. A bearish breakout occurs when price closes below the lower channel. The significance of the breakout depends on the channel period length, with longer periods producing fewer but more meaningful breakouts. Volume confirmation is crucial, as breakouts with high volume are more likely to lead to sustained trends. False breakouts are common, so many traders wait for a close outside the channel rather than just an intraday breach.
What channel period should I use for Donchian Channels?
The optimal Donchian Channel period depends on your trading style and the market you are trading. The classic 20-period setting works well for swing trading on daily charts, capturing approximately one month of price action. Shorter periods like 10 or 14 generate more frequent signals suitable for active traders but produce more false breakouts. Longer periods like 50 or 55 periods (used in the original Turtle system for System 2) produce fewer but higher quality signals ideal for position trading. For intraday trading, periods of 20-50 on 5-minute or 15-minute charts can identify short-term breakout opportunities. Many traders use multiple Donchian Channels simultaneously, such as 20-period for entries and 10-period for exits.
How does channel width relate to market volatility?
The Donchian Channel width is a direct measure of the price range over the lookback period and serves as a volatility gauge. When the channel is narrow, it indicates a period of low volatility and price compression, which often precedes a significant breakout move. Wide channels indicate high volatility with large price swings within the lookback period. As the channel narrows, the upper and lower bands converge, creating a squeeze pattern similar to Bollinger Band squeezes. Traders watch for the channel to start expanding after a period of compression as a signal that a new trend is beginning. The channel width divided by the middle line gives a percentage measure of relative volatility that can be compared across different instruments.