The Donchian Channel indicator can help identify the trend and direction of the market. Also, it can help to find entry points at breakouts and trade on a trend. The indicator is going to help with a stop loss while trading on the platform Olymp Trade.
The next thing is the indicator setting. It is automatic, and it has a twenty-period setting. You can adjust it according to your strategy but if you are just starting out, or you are just learning, basically you should stick with the default settings.
We have the upper band and the lower band which together form a channel.
The upper band is showing us the 20-period high and the bottom channel is showing us the 20-period low. The middle line is the average between the upper and lower band.
How the indicator is used
If the price is above the middle line then we are potentially looking for long positions. This is the meaning to buy and if the price is below the line we will look for cell traits.
You should not just click on buy or sell because the price is above or below the middle line. You have to analyze the whole picture, understand the global trend, analyze support and resistance levels and fundamentals.
Whenever the market is moving sideways, it usually means that the market is waiting for something. It could be waiting for the market to open. For example, if you’re trading certain currency pairs the market opens in different sections of the world at different times, they’re called trading sessions. The main ones are the Asian, London (the European and the United States).
It could be waiting. For example, for the markets to open, it could be waiting for some news release. It could be that the market will eventually break out. So it’s gonna either break out to the upside or it is gonna break to the downside, but eventually, the market is gonna do something.
We see that the upper channel is not creating higher highs but we see slightly lower lows on the lower channel. When we see a new 20-period low is where we are going to start looking for the first cell traits. It can help us identify and help in a breakout.
Another way that we can use the indicator is when the price crosses the middle line this most often means that we have a change in trend.
We see that there was a local downtrend, that the price broke above the middle line, and then it remained in a flat for like 14 days. When we see that the price is the channel is creating new 20-period highs as we can see on the picture we answer a bitrate. This is a signal for answering a bitrate. We have an intersection of the middle line, a flat, and then a very nice uptrend.
How does the indicator help a ride the trend
You should move your stop-loss up or down depending on which way the price is moving. You should adjust it slightly above the middle line on a downtrend and slightly below the middle line on an uptrend.
Remember that whenever the price does break that middle line it probably signifies that there is a change in trend that means it is time to get out and stop loss is going to help us with that. So always always use your stop-loss.
Average Directional Index
The indicator shows two things: if we have an uptrend or downtrend and the strength of the trend.
How it works
If the positive GI which is the uptrend the green line is above the red line which is the negative GI then we have an uptrend. Likewise, in a scenario when the red line is above the green line, then we have a downtrend. The blue line is going to show us the strength of the trend. If it is above 25 then we have a strong trend, if the price is below 25 then there is either a weak or no trend on the market.