Meet the Legend:
Richard Donchian
Richard Donchian isn't just a name in trading; he's a cornerstone of trend-following strategies. Often hailed as the father of this approach, his principles laid the groundwork for the famed Turtle Trading system. Remarkably, Donchian found his stride later in life, proving that age is just a number when it comes to trading success.
So, what exactly are Donchian Channels? Simply put, this volatility indicator calculates the current price range by identifying the highest highs and lowest lows over a specific period. To set up the Channel, you only need to pinpoint these extremes for your chosen timeframe.
Donchian himself recommended a 20-period setting for constructing the Channel. Back in the day, trading was predominantly done on daily charts, making 20 days a natural choice—it's roughly the average number of trading days in a month. However, this 20-period setup is flexible enough to work well on shorter timeframes too. You might even find interesting results using periods like 18 or 24. Notably, the Turtles utilized a 55-period for their market entries.
Many trading systems that incorporate Donchian Channels are breakout strategies. While they might not have the highest win rate, the idea is that even a small percentage of profitable trades can cover losses from the many unsuccessful ones.
In this version of the indicator, there's also a centerline added, alongside the upper and lower boundaries, providing even more insights for your trading decisions.
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