how to calculate donchian channels
technical analysis in trading evaluates and predicts future price moves and trends for securities one tool employed often is the donchian channel while the mathematical formula behind it is straightforward many online trading platforms and technical analysis apps calculate and plot the donchian channel for you this convenience is helpful but it s also important to understand the nuts and bolts so you know the tool s benefits and its limits basically the donchian channel is formed by identifying the highest and lowest prices of a security over a set time 1 this can be adjusted based on your trading strategy though the most common is 20 periods the typical number of trading days in a month the upper channel line is drawn at the highest price reached during a period while the lower channel line is at the lowest price there s also a middle line which represents the average of these two extremes here s the formula and then how it works uc highest high in last n periodsmiddle channel uc lc 2 lc lowest low in last n periodswhere uc upper channeln number of minutes hours days weeks monthsperiod minutes hours days weeks monthslc lower channel begin aligned text uc highest high in last n text periods text middle channel uc lc 2 text lc lowest low in last n text periods textbf where uc text upper channel begin aligned n text number of minutes hours days text weeks months end aligned begin aligned text period text minutes hours days weeks text months end aligned lc text lower channel end aligned uc highest high in last n periodsmiddle channel uc lc 2 lc lowest low in last n periodswhere uc upper channeln number of minutes hours days weeks months period minutes hours days weeks months lc lower channel the upper channel uc is the highest price level over a specified number of periods n the periods can be minutes hours days weeks or months depending on your trading strategy by contrast the lower channel lc is the lowest price level over the same number of periods the middle channel is the average of the upper and lower channels giving you a midpoint in the price range 