Explained: What Is Donchian Channel & How To Trade With It?

We use technical analysis indicators to understand the market’s current situation by smoothing out volatility noise and giving them clues about potential future moves. While some indicators focus on the trends and volatility, others usually revolve around a trend’s momentum. However, there is a simple and multifunctional indicator that touches upon all of the mentioned aspects— the Donchian Channel.

Yes, this technical analysis indicator is more commonly used in the traditional market, but it’s equally applicable in crypto markets, including derivatives futures trading. In fact, the founder (Richard Donchian) itself is a futures trader, which proves it works exceptionally well for hedging or trade speculation.

Donchian Channel is arguably similar to Bollinger Bands, particularly with its three separate lines. But it mainly focuses on identifying the high and low extremes that may lead to reversals, breakouts, breakdowns, and trends.

All in all, Donchian Channel is a volatility indicator that resembles a fluctuating channel when plotted on the price action. It mainly helps traders to visualize the resistance and support levels based on the recent highs and lows. Hence, enabling traders to understand the volatility of a price better.

The best part? It is one of the simplest trading indicators suitable for novice to advanced traders, and its versatility makes it applicable to all markets, including cryptocurrency.