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PipsGrowth

Key Takeaways

Difficulty:Beginner
Reliability:High
Category:volatility
Timeframes:1H, 4H, Daily

Price Channel (Donchian Alternative)

volatilityšŸ“Š 1H, 4H, Daily

Upper and lower bands based on highest high and lowest low over a period.

Formula

Code
Upper = Highest High(n)
Lower = Lowest Low(n)
Middle = (Upper + Lower) / 2

Detailed Explanation

Price Channels plot the highest high and lowest low over a lookback period.

**Trading Approaches:** 1. **Breakout**: Trade breaks of the channel 2. **Reversion**: Fade moves to channel extremes 3. **Trend**: Stay long above middle, short below

Parameters

Period
Default: 20
Channel lookback period

šŸ“ˆ Bullish Signals

Price breaks above upper channel, especially with volume

šŸ“‰ Bearish Signals

Price breaks below lower channel, especially with volume

Python Implementation

Price Channel calculation

Python
import pandas_ta as ta
donchian = ta.donchian(df['high'], df['low'], lower_length=20, upper_length=20)
df['Upper'] = donchian['DCU_20_20']
df['Lower'] = donchian['DCL_20_20']
df['Middle'] = donchian['DCM_20_20']

TradingView Pine Script

Try on TradingView
JavaScript
//@version=5
indicator("Price Channel", overlay=true)
upper = ta.highest(high, 20)
lower = ta.lowest(low, 20)
middle = (upper + lower) / 2
plot(upper, "Upper", color=color.green)
plot(middle, "Middle", color=color.gray)
plot(lower, "Lower", color=color.red)
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MT5 MQL5 Code

C++
// Use iHighest and iLowest functions

Python Libraries

pandas-ta
Technical analysis
pip install pandas-ta

Common Mistakes

āœ—Not using stops on breakout trades
āœ—Fading breakouts in strong trends

Confirmation Signals

Volume on breakout
ATR expansion
Trend alignment

Best For

Breakout tradingTrend followingChannel trading

šŸ’” Pro Tips

  • ā€¢Classic trend-following system
  • ā€¢Used in Turtle Trading strategy
  • ā€¢Wider channels = stronger trends
Last updated: December 29, 2024

Educational Disclaimer

This content is for educational purposes only and does not constitute financial or investment advice. Trading involves significant risk and you may lose your capital. Always consult a licensed financial advisor before making investment decisions.

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Frequently Asked Questions

Related Indicators

Bollinger Bands

Consists of a middle band (SMA) and upper/lower bands set at standard deviations from the middle.

Keltner Channels

Volatility-based envelopes using EMA and ATR, similar to Bollinger Bands but smoother.

Donchian Channels

Price channels formed by the highest high and lowest low over a specified period.

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