In this article, we will be discussing the Donchian Channels indicator which is a banded technical indicator like Bollinger Bands.
I will first provide
- A brief introduction to the theory or concept behind Donchian Channels and how trading signals (buy or sell) are determined using this indicator.
- A demo of the template and how you can use it to calculate Donchian Channels and trading signals for any stock you are interested in.
Concept / Theory
The Donchian Channels (DC) indicator was created by the Richard Donchian who is known as The Father of Trend Following.
Donchian channels is a measure of volatility of the stock price. As this is a banded indicator, there is an upper line and lower line that serve as the boundaries of the channel. A middle channel line is also displayed.
Donchian Channels Calculation
Only input parameter for this indicator is the Length which defines the number of periods to look in history. A 20-day period is the most used and here is how the three channel lines are calculated for each day.
- Upper Channel = 20 Day High price
- Highest High price for the past 20 days including today
- Lower Channel = 20 Day Low price
- Lowest Low price for the past 20 days including today
- Middle Channel = (20 Day High Price + 20 Day Low Price)/2
A potential trading signal strategy using the Donchian Channels is listed below.
There is no golden rule or a rule that works all the time. Otherwise, everyone will use that rule and make a lot of money easily. 😊
- If the High price moves touches the Upper channel Line, then a Buy signal is generated.
- If the Low price moves touches the Lower Channel line, then a Sell signal is generated.
The template will help you create the Donchian Channels automatically and also calculate the trading signals instantly for any stock.
How to refresh data?
How to Use:
Type in a stock sticker symbol on the top left.
If Excel does not recognize your stock symbol, it will pop up this data selector box.
You can select the stock you are interested in.
The template can pull up to 5 years of price history by default. You can choose how much history to display on the chart easily using the slicer buttons.
The options are 5 Days, Month Till Date, 1 Month, 3 Months, 6 Months, Year Till Date, 1 Year, 5 Years.
The template allows price history at 3 different intervals.
Daily/Weekly/Monthly are the options.
Input Parameter – Length
Length: You can type in a length in periods. For example, in the above screenshot, we have entered 20 periods.
The chart will update automatically based on all the above inputs.
The template shows the buy and sell signals on the chart.
In addition, if the latest day has a Buy or Sell signal, it is displayed on the top next to the current price.
On the top right you can see the maximum of the last trade time of these currencies.
The default time that Microsoft provides is UTC. The offset is set to -7 hrs, to convert to pacific time zone.
You can modify this if you need the time in a different time zone.
Visit https://savvytime.com/converter/utc to view offset.
Please share your feedback on this template in the Comments below. If you find this useful, please share with your friends who may benefit from this content.