GlossaryDonchian 20

Donchian 20

The Donchian Channel draws the highest high and the lowest low of the latest candles as its upper and lower limits, plus their midpoint. It shows a period's trading range at a glance and is the basis of classic trend-following breakout systems.

How the channel is built

The upper band is the highest high, the lower band the lowest low in the window. The window covers the latest candles including the current one, as many as the Length specifies. The midline (dashed) lies exactly halfway between the two bands.

The area between the bands is lightly shaded. The channel starts as soon as the window is full for the first time. Closing and opening prices play no role, only highs and lows.

How to read it

Breakout: Because the current candle counts, the price can never be above the upper band. A new high for the period shows up as the upper band jumping up with the price. Classic trend-following systems buy exactly there, at the new 20-candle high, and sell at the new low.
Stairs: The bands move in steps. They rise when a new high forms and fall when an old high drops out of the window. A long, flat upper band is a resistance zone.
Width: A narrow channel shows a quiet range, a wide one a strong move within the period.
Midline: When the price is above it, it is in the upper half of the range.
Trailing stop: In trend-following systems, the opposite side of the channel often serves as the stop, so in an uptrend the lower band, which trails along with the trend.

Settings

Setting	Default	Effect
Length	20	Number of candles for high and low (2–200). Larger means a wider channel and rarer breakouts.

Limitations

A single wick sets the band for as long as it stays in the window. Outliers and short spikes therefore have a long-lasting effect.
In sideways phases, breakouts at the edges produce many false signals, because the price often falls back into the range after a new high.
The name in the menu states the default length. The calculation uses your setting.