Richard Donchian was a professional who invented the Donchian Channel indicator in the 1970s. It was successfully applied to the forex market as well as options trading. It is quite a powerful indicator, although many traders underestimate it.
The Donchian Channel shows the lower and upper limits of the trend visually and this is why it is adored by professionals. In fact, this is exactly what you need when trading digital options. Your goal is to predict the direction of the price in the future that is, whether the trend will continue or reverse.
IQ Option included the Donchian Channel indicator in its offer and today we are going to talk just about it.
How to add the Donchian Channel indicator to your chart on IQ Option
Once you have accessed your IQ Option platform, click on the “Chart analysis” icon that you will find on the left side of the trading interface. You will see the Donchian Channel under the “Indicators” tab between the volatility indicators.
A faster way is through the search box. It is enough if you just start writing the indicator's name.
Then, you have the possibility to change the indicator's parameters. You may customize the period, the colour and the thickness of all of the three lines, and you can choose to fill the channel with the colour.
The Donchian Channel introduction
There are three lines that form the Donchian Channel indicator. Their calculations depend on the period set. The predefined period n is 20 but as was said earlier, you can adjust it according to your needs.
The lower limit is the lowest price value observed during the period n. The upper boundary is the highest value of the price within the last n period.
The chart with the Donchian Channel on may resemble the Bollinger Bands. There are also lower and upper limits, but here the price does not extend the borders like in the Bollinger Bands. Also, the Donchian Channel consists of the middle line which is exactly in the middle between the upper and lower band.
Trading with the Donchian Channel on the IQ Option platform
You will observe the price movements within the channel created by the lower and upper boundaries. What you are looking for are the crossover points of the candle with the middle line.
When you notice that the bearish candle intersects the middle line, enter a sell transaction.
When the bullish candle crosses above the middle line, you should enter a buy trade.
By observing the candlesticks within the Donchian Channel, you can identify the trend.
The uptrend is developing when the channel moves upward. Besides, the candles form over the middle line.
The downtrend is emerging when the channel moves downward and the candles develop below the middle line.
Another way of trading with the Donchian Channel is through observing the points where the price rebounds from the middle line.
Open a short position if candles rebound from the middle line through the downtrend.
Go long when there is an uptrend, the price comes to the middle line, rebounds and proceeds up.
The Donchian Channel is a great tool. It visually shows the highest high and the lowest low during a given period of time. It helps to determine whether the uptrend or downtrend is developing. It identifies price breakouts.
As always, my advice is to try this tool on the IQ Option practice account first. You get the opportunity to conduct risk-free transactions there. This way you have time to get to know how the indicator works. Once you are ready, move onto the real account and start making money.
I would be happy to hear about your experience with the Donchian Channel indicator. You will find the comments section down below the site. Leave your comment there.
Wish you success!
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