Introduction to the Donchian Channel Indicator
The Donchian Channel Indicator is a volatility indicator that uses the calculation of the current price range with the help of the recent highest and lowest price levels of an asset. To perform the calculation for the Channel, the gauge needs to find the highest maximum and the lowest minimum for a defined period.
The Donchian Channel Indicator fits all kinds of timeframes and currency pairs. It is displayed directly on the main trading chart. The default settings can be modified directly from the input tab. Feel free to experiment with the settings and parameters to fit your personal preferences.
Closer look on the Donchian Channel Indicator
In the trader’s environment, Richard Donchian is an iconic figure. He is the person behind the famous Turtle Traders. That strategy made him crazy successful, even though he was in his old years. He is known and called the father of trend following.
The Donchian Channel consists of an upper band, a lower band, and a median line. The indicator is based on the following formula:
Upper Channel (UC) = Highest High in the Last “N” Periods
Lower Channel (LC) = Lowest Low in the Last “N” Periods
Middle Band = ((UC – LC)/2)
N = Period
Richard Donchian himself recommended using period 20 to build the Channel. Back in the day, trading was usually conducted on daily charts and 20 is exactly an average number of days in a month. Nowadays, you are more than welcome to play with the settings. Results of building the Channels with periods of 18, 24, 55, etc. give interesting results. “The Turtles” used the period of 55.
Most strategies using the Donchian Channel are breakout strategies. Let’s take a look at the basic trading rules for the gauge.
The buy signal occurs when the price breaks the upper band with a strong candle. You can place stop loss a few pips below the lower band. Take profit can be taken when the price closes below the middle band or use your own method of trade exit.
Similarly, the sell signal occurs when the price breaks the lower band with a strong candle. You can place stop loss a few pips above the upper band. Take profit can be taken when the price closes above the middle band or use your own method of trade exit.
How to set up the Donchian Channel indicator in MetaTrader (MT5)?
Download the Donchian Channel.rar archive at the bottom of this post, unpack it, then copy and paste the Donchian Channel.ex5 or Donchian Channel.mq5 indicator files into the MQL5 folder of the Metatrader 5 trading platform.
You can gain access to this folder by clicking the top menu options, which goes as follows:
File > Open Data Folder > MQL5 > Indicators (paste here).
Now go to the left side of your MT5 terminal. In the Navigator find the gauge name, right-click it and select Attach to the chart.
Summary Of That Forex Indicator
The Donchian Channel indicator is well worth adding to your trading collection. A good forex indicator will most probably enhance your chance of success. Nonetheless, remember about having realistic expectations. Just like any other technical analysis tool, is not capable of providing accurate signals 100% of the time. Thus, this forex indicator provides false signals occasionally. Its performance will vary significantly depending on market conditions. Feel free to develop your own trading system based around it. Don’t forget that we still have more great free forex indicators to try.
Download Free Forex MT5 Donchian Channel Indicator
To download the Donchian Channel Indicator for Metatrader 5 (MT5) for free just click the button below: