How to Use the Donchian Channel to Earn up to 82% Profits in Olymp Trade

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You will agree when I say:

Trading fixed time trades on Olymp Trade can sometimes be a source of headaches.

Why?

Because you need to predict trends and monitor possible reversals. Failure to do so, you will lose your capital.

I hate losing and I bet you do too. And that is why we use tools to help us analyze the prevailing market conditions and hopefully generate tradable signals.

One such tool is the Donchian channel.

In this article, you will learn more about the Donchian channel on Olymp Trade and how to trade and win up to 82% profits using this indicator.

What is the Donchian channel indicator?

Donchian channel indicator on Olymp Trade is a technical analysis tool designed to help you identify trends and entry points into the market.

You can use it to ride a trend for as long as it is visible and to avoid shakeouts when they occur.

Ideally the Donchian channel resembles bollinger bands. And just like the bollinger it has: –

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  • The upper band – computed as the highest high price for the ‘n’ period.
  • Lower band – derived from lowest low price point for the specified ‘n’ period.
  • Middle band – calculated as the average of the upper and lower band.

That paints a clear picture of the Donchian channel. As such, looking at it closely, you will realize that the two bands enclose a ‘path.’

This place between the upper and lower band is what we call the Donchian channel.

Then, who is Donchian?

That would be the futures trader Richard Donchian. In the middle of the twentieth century, Richard was looking for a better way to identify prevailing market trends.

In the process of his research, he developed a technique known as a sliding channel, which was later renamed after him; Donchian channel.

Today, most traders know him as ‘the father of trend following.’

Most traders rely on this indicator to trade trends on Olymp Trade and that’s why you should too.

Don’t get me wrong. I don’t suggest that you use Donchian because everyone else uses it, but because it works like charm.

To get started, you need to understand what I call ‘the-behind-the-scene’ of the indicator.

By this, I mean things like how it is calculated, how it is set up and ya-ta.. ya-ta.. . Which isn’t so necessary as all calculations are automatically done by the indicator. But is still worth learning… . Just for the knowledge.

How is the Donchian channel calculated?

To help you understand how the Donchian channel is calculated, I will break it down into three separate parts:

Channel high:

  1. Pick time period (n period) of your choice (minutes, hours, days, weeks…
  2. Compare the highest price point for each minute, hour, day, week or month for that n period.
  3. Select the highest.
  4. Plot the results.

Channel low (lower band):

  1. Choose the n period.
  2. Compare the low of each minute, hour… over that period.
  3. Go with the lowest.
  4. Plot the results.

Center channel.

  1. Determine the time period (n minutes, hours, days).
  2. Compare high and low price points for each minute, hours, days, etc. over that specified period.
  3. Compute the average (subtract the highest high from the lowest low and divide by two).
  4. Plot the results.

And that, folks, is how you derive the channels on Donchian channel indicator.

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Moving on, all these calculations must be saying something. They must be relaying some trading messages.

Let’s find out.

What does the Donchian channel indicator tell you?

In a nutshell, the Donchian channel indicator, just like Bollinger bands, predicts the market’s bullishness or bearishness.

How?

By bringing together two prices: the current price and trading ranges determine the relationship between the two over a specified period.

As a result, three values representing the price are plotted on the chart giving you a visual picture of its journey (whether bullish or bearish).

To make it easier for analysis:

  • The top band tells you about how strong the bulls are by showing you the how far they succeeded in pushing the price up.
  • The bottom band gives you a clear picture of bear power by highlighting the lowest price point achieved as a result of a bull-bear tag war.
  • Centerline gives another story. It identifies the middle price ground during this period

Before we move on to look at Donchian channel trading strategies, we first need to add the indicator to your Olymp Trade trading chart.

Adding the Donchian channel indicator to Olymp Trade chart.

To complete these steps, you need to be logged in to your trading account, select the asset you’d like to trade and finally choose your preferred chart type (Japanese candlesticks).

Once you complete these initial steps, do this:

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  1. Locate the indicators tab on the trading interface.
  2. Select the Donchian channel from the list.
  3. And it will be added to your chart.

Olymp Trade Indicators

As you are already aware, every Olymp Trade indicator comes with custom parameters and Donchian channel is no different.

Richard Donchian recommended using the 20 periods. As such, on a trading chart, the indicator is computing points of the last 20 candles, finds the maximum and minimum levels and plots them as upper and lower bands.

How to trade on Olymp Trade using Donchian channel

This is how Donchian channel indicator generates signals on Olymp Trade:

It oscillates between the upper and lower band. As a result, you should pay attention to the points where the candlesticks touch the Donchian upper and lower bands.

Olymp Trade trading signals.

  • When the bullish candle moves above the middle line, enter a buy position.
  • Open a sell position (short position) when the bearish candle moves below the centerline.

Donchian Channel

Predicting a trend using Donchian channel on Olymp Trade

You can easily determine a trend on Olymp Trade using this indicator.

  • Uptrend – when the price candles are forming above the middle line and the channel is moving up.
  • Downtrend – the price candles are located below the middle line and the channel is moving dipping.

How to trade the breakout strategy with this indicator

Here is a thing:

The secret to not losing much money on fixed time trades is leveraging breakouts. Because let’s face it, you won’t be in a position to bag more money during huge trends if you are only relying on pullbacks.

Why?

Because the market pullback you are waiting for may never come and you will miss the entire party.

The solution?

Consider adding breakout to your Olymp Trade trading strategies.

Think about it for a second:

If the market is going to trend, it must first breakout higher.

Meaning, if you trade the breakout, you are in a better position to catch every trend.

How do you do that?

Here is what to do:

Whenever you see the price candle ‘touching’ the upper band of the Donchian channel indicator, open a long position.

Trading the Donchian Channel

Do this consistently and you will be able to catch all the market trends.

As a bonus, here is a tip:

Consider adjusting the Donchian channel period to 50, 100, or even 200-period breakout.

Good luck placing fixed time trades on Olymp Trade.

More Indicators in Olymp Trade.

*Risk warning:

The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.

 

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Kenn Omollo is an investment writer and a business management consultant at Joon Online Limited. Reach him at - kenn@joon.co.ke

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