What Is Donchian Channel?
Donchian Channels plot the highest high and lowest low over a specified number of periods (typically 20), creating an upper band, lower band, and middle band (the average of the two). The channels expand during trending periods and contract during consolidation. They were the foundation of the famous Turtle Trading system.
How Donchian Channel Works
The classic Turtle Trading rule: buy when price breaks above the 20-day Donchian high (a new 20-day high), and sell when it breaks below the 20-day Donchian low (a new 20-day low). This simple breakout system captures all major trends because it enters on every new high/low in the lookback period.
Why It Matters for Traders
Donchian Channels work well in crypto because crypto trends tend to be long and powerful. The 20-day breakout system catches every major move, though it generates false signals during choppy periods. Combining Donchian breakouts with a volatility filter (only trade breakouts when ATR is above its average) or a trend filter (only long when above the 200-day MA) significantly improves the signal quality.
