Trading | 1 month ago
Forex Trading involves the speculation of exchange rate price movements to make a profit. A trader uses different technical indicators with the available variable to forecast the rise or fall of the currency in order to maximize the profit. In this article we will discuss how to use donchian channel indicator in forex trading.
Donchian channel is a simple yet very versatile technical indicator used by professional as well as institutional traders. We will discuss how to use donchian channel indicator in any timeframe, when to buy, when to sell and how to book profit.
What is donchian channel indicator?
The creator of the donchian channel was a renowned trader named Richard donchian. The donchian indicator plots two primary lines which are based on the high and low prices of an underlying asset over a specified period of time. We can also add a middle line which denotes the average of upper resistance line and lower support line of the donchian channel.
Why use the donchian channel indicator?
Donchian channel help traders to identify whether a price movement is likely to continue or reverse direction in the underlying asset. They can help you identify the trend in the market, swing highs and lows, support and resistance levels, market volatility and spotting breakouts. The donchian channel indicator is mostly used to spot the price breakouts above resistance levels and breakouts below support levels.
How to adjust the donchian channel indicator?
Preferred settings for the donchian channel indicator is 21 periods but one can customize it based on their trading style.
What is the best time frame to trade with donchian channel indicator?
One can use the donchian channel indicator on any time frame but a higher time frame trade setup is often more reliable. So, one must use the donchian channel indicator with hourly or daily chart.
When to place the buy order?
Place a buy order when the price moves above the middle donchian band and moves toward the upper donchian channel.
When to exit the buy order?
Exit the long position (square off) when price starts moving below the middle donchian band and moves toward the lower donchian channel.
When to place the sell order?
Place a sell order when the price moves below the middle donchian band and moves toward the lower donchian channel.
When to exit the sell order?
Exit the short position (square off) when the price moves above the middle donchian band and moves toward the upper donchian channel.
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