The Donchian Channel is an overlay which shows the price range within which a stock traded during a given period. The Channel consists of two bands: an upper band which plots the highest price for a given period (ie. the Highest High); and a lower band charting the lowest price reached during a given period (ie. the Lowest Low). When the indicator was first created, the Donchian Channels typically tracked one month’s worth of data, so upper and lower bands plotted the highest and lowest prices reached over a 20-day period.
Investors can use Donchian Channels to identify breakouts. These may occur when the price breaks out of the channel and closes above the upper band. Investors can also use the Channels to identify breakdowns, which may occur when the price closes below the lower band. In addition, the Channels can be used to assess market volatility. The Channels will, of course, be wider (narrower) when there are large (small) fluctuations in the share price.
Parameters
High Period - How many periods to use when plotting the higher band (eg. if you select 20, the higher band will plot the highest price reached during a 20 day period).
Low Period - How many periods to use when plotting the lower band (eg. if you select 20, the lower band will plot the low price reached during a 20 day period).