Donchian Channels for Trend-Following Breakout Signals

Summary

The document describes a Donchian channel indicator built from the highest high and lowest low over a chosen lookback period. Its example uses a period of 20 and calculates a midpoint halfway between the upper and lower bands. The calculations use prior bars, so the current bar does not set the channel levels used for comparison.

The author presents the indicator as a component of a trend-following system, with potential signals when price crosses above the upper band or below the lower band. The note does not specify entry, exit, or position-sizing rules, nor does it provide backtest results or evidence that the method is profitable. It also suggests combining the channel with other indicators, without naming them. The described calculation is therefore a basic indicator recipe rather than a complete trading system.

Key ideas

• The upper and lower Donchian bands track the highest high and lowest low over a selected lookback period.
• The example sets the lookback to 20 periods and calculates the midpoint between the bands.
• The author uses band breaks as potential trend-following signals alongside other indicators.
• The document does not define full trade management rules or provide performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.