CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Donchian channel

The Donchian channel was invented by a trader called Richard Donchian. The two bands of the channel are based on the highest high and the lowest low of a set period. Donchian himself based both channel bands on the highest high and the lowest low of the last 20 days. Donchian would consider opening a long position when the market price goes above the 20-day channel. Alternatively, he would consider opening a short sell position when the market price goes below the 20-day channel.

Another trader, Curtis Faith, who worked on the Turtle Trading system, uses fairly similar values for the two bands. In the case of Faith he opens a position when the market price crosses a 20-day channel. He then, however, uses a 10-day channel as his stop. The Donchian channel is also used by German trader Birger Schäfermeier for closing positions.

This example shows a Donchian channel with both bands based on 20-day periods.

 

This example is the same chart as above. It shows, however, a Donchian channel with the upper band based on a 20-day period and the lower band based on a 10-day period. Some traders would open a long position (if the underlying trend is bullish) when the market crosses above the upper band and they would use the lower 10-day band as stop.