Description:
The Adaptive Donchian Channel is a new take on an old classic. Donchian Channels are a type of price action indicator that measure the range of price. The top Donchian line is always above the price action while the bottom line is always below it. There is no way for these lines to be within the price action, they are always on the edges. However, where a traditional Donchian Channel indicator adjusts based on a time factor alone (e.g. after X candles have passed after price has changed, both the upper and lower bands will reset to the latest price level) the Adaptive variant of this indicator only adjusts the lower level when the upper level is adjusted by price, and vice versa. This creates a new way to measure ranges where the range is not reset until one part of it is “pushed” to reset by price.
Input Parameters:
- Length: Number of periods used in calculation.
- Offset: The offset value is used to access the data of any candle or indicator with reference to the current candle, to access the current candle data it will use the offset value of "0", to access previous candle data "-1" offset value will be used, access data of previous to previous "-2" will be used.
Use Cases:
- Breakout Strategy: The Donchian Channel breakout strategy is a trend-following strategy that uses the Donchian Channel to identify potential breakouts and profit from them. This strategy is based on the assumption that when the price breaks above the upper Donchian Channel band, it is a bullish signal, and when it breaks below the lower Donchian Channel band, it is a bearish signal.
- Crawl Strategy: The Donchian Channel crawl strategy is another trend-following strategy that involves waiting for the price to crawl along the upper or lower bands of the Donchian Channel before entering a trade. This strategy is based on the assumption that when the price crawls along the upper band, it indicates strong momentum to the upside, and when it crawls along the lower band, it indicates momentum to the downside.
- Mean Reversion: The Donchian Channel mean reversion strategy involves buying when the price falls below the lower Donchian Channel band and selling when the price rises above the upper Donchian Channel band. The rationale behind this strategy is that the price will eventually revert to the middle band or the mean, providing a profitable trading opportunity.
Do you want to learn more? Check out our [Learning Center Article](https://trendspider.com/learning-center/donchian-channel-trading-strategies/).