What it measures

A Donchian Channel is the simplest definition of a range: the highest high and the lowest low of the last n bars. Price above the upper line has done something it has not done in n bars. Richard Donchian's rule, later the Turtle traders' rule, was to buy that and to sell when price undercut the lowest low of a shorter window.

The calculation

upper = highest high of the last n bars lower = lowest low of the last n bars middle = (upper + lower) / 2

Most strategies compute the channel on the previous bar (high[1]), so the current bar can break out of it; computed on the current bar the price can never exceed the channel it is part of.

Inputs and defaults

  • Length: 20 is the classic entry window, 10 the classic exit; 55 was the Turtles' longer system. TradingView's built-in uses 20.

How it is read

As a breakout rule: a close above the upper band is a long entry, a close below the lower band a short entry or a long exit. The middle line is used as a trend filter or a trailing stop. Many strategies pair it with an ADX or EMA filter to skip breakouts in a range.

Where it fails

Most breakouts fail. A Donchian rule is wrong more often than it is right and relies on the few breakouts that run to pay for the rest, so its equity curve is long flat stretches with occasional steps. The lookback is the whole rule: shorter catches more moves and far more false ones. In a range the rule buys the top and sells the bottom of the range, repeatedly.

How the desk reads it

A Donchian rule is judged on its false-break cost, so the desk counts the trades rather than admiring the best one, and looks at the drawdown in the year the ranges did not resolve. Filters on breakout rules (trend strength, a long average, a minimum breakout distance) are read as parameters that were tuned to skip the breakouts that failed in the sample.

In the desk's screen

Of the 614 screened strategies in the library, 105 (17.1%) use this indicator somewhere in their logic.

39 of those were gross-profitable on enough cells to reach the after-fee replay.

The count is read from the compiled code of each strategy in the library; a strategy that computes the indicator by hand under another name is not counted. The desk's own rules are not part of the count.