Donchian Channel
Bands drawn at the highest high and lowest low of the last n periods, with a midline between them.
Formula
Upper Channel = Highest High over n periods; Lower Channel = Lowest Low over n periods; Middle = average of the two
Unit
₹
In depth
The Donchian Channel is the simplest possible volatility envelope: it draws the actual extremes rather than a statistical estimate of them, so every value is a price that genuinely traded. It is the basis of classic breakout systems, including the Turtle rules, where a close beyond the channel defines entry and exit. Its weakness is the drop-off effect: when an old extreme rolls out of the window, the channel jumps without any new price action. The construction is described here; nothing about a breach of the channel is claimed to predict direction.
Worked example
Over 20 periods the highest high is ₹536 and the lowest low ₹468, giving a channel ₹68 wide with a midline at ₹502. If tomorrow the ₹536 print rolls out of the window, the upper channel drops to the next-highest high with no trading involved.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Donchian Channel” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.