Donchian channels(DC)

Donchian channels was created by Richard  Donchian.

Donchian channels is a trend following  indicator that is used to identify the volatility of the market.

Just like in bollinger band,donchian channels also has 3 bands, the upper band, the lower band and the middle band.The upper band represents the highest high price over a given n period while the lower band represents the lowest low price over a given n period.The middle band represents the average of the upper and lower band and is used to identify the price breakout.

Donchian channels is therefore calculated using the following formula;

middle band=(upper band + lower band)/2

upper band= highest high over a given n period

lower band = lowest low over a given n period

Since donchian channel is a trend following indicator and it has 3 bands, upper band, middle band and lower band, it therefore follows that when the price rises above the upper band that will be an indication of an upward market movement thus the trader should be trading in an upward market direction.If the price rises above the highest high of the upper band, the trader should close any long position since that will be an indication of an overbought market.On the other hand, if the price falls below the lower band that will be an indication of a downward market movement thus the trader should be trading in a downward market direction.If the price falls below the lowest low of the lower band,the trader should close any short position since that will be an indication of an oversold market. This is indicated as from the candle sticks chart below;

From the candle sticks chart below, there are 5 points, point A, B, C, D and E. Point A and E represent the breakout points while point B and C represent upper band and lower band respectively. Point D represent the midlle band which is used to indicate occurrence of breakout points.
Initially, at point A the price falls below the lowest low of the lower band thus indicating an oversold condition at that point thus signaling the trader to exit any sell position . Later on, the price rises above the upper band thus signaling the trader to open a buy position since the market is starting an upward trend.
On the other hand, at point E, the price had initially risen above highest high of the upper band thus indicating an overbought condition at that point thus signaling the trader to exit any buy position. Later on, the price falls below the lower band thus signaling the trader to open a sell position since the market is starting a downward trend.

Recommendation:If you are a day trader just use 1 min, 5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want donchian channels indicator to work well for you.