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The Price Channel strategy (also known as a Donchian Channel) creates a “envelope” around price based on the highest highs and lowest lows of the recent past.
How Logic Works
The strategy plots two lines: the highest high of the last n bars and the lowest low of the last n bars.
- Long Entry: Triggered when the price touches or breaks above the Upper Channel.
- Short Entry: Triggered when the price touches or breaks below the Lower Channel.
- The Goal: To capture “volatility breakouts” where the market is moving into uncharted territory for the current period.
Strategic Considerations
- Trend Following: This is a classic trend-following setup. If a price can break its 20-period high, it is often a sign of a significant new move.
- Sideways Markets: Like the Bollinger Bands, this strategy can suffer in a tight range where the price bounces between the bands without sustaining a breakout.
