Donchian channel

[1] It is formed by taking the highest high and the lowest low of the last n periods.

[2] Donchian Channels are a technical indicator that seeks to identify bullish and bearish extremes that favor reversals, higher and lower breakouts, breakdowns, and other emerging trends.

If the price fluctuates, a lot the Donchian channel will be wider.

Its primary use, however, is for providing signals for long and short positions.

If a security trades above its highest n periods high, then a long is established.

With today's trading platforms, the period may be of the value desired by the investor.

Extensive backtesting utilizing 360 years of exchange data and 4,887 test trades with the default setting of 20 indicates that the Donchian channel indicator was ineffective.

Combined with a reward to risk ratio of 2.0:1, it yields an expected profit of 5 cents per dollar invested.