Trading forex without understanding price movement is like trying to write on a white piece of paper in the dark. No matter how calculative you are, you will end up missing the lines. Special indicators have been created to enable you to study price movement in the market to know when to enter or leave. One of such forex indicators is the Donchian Channel Indicator Mt4
The Donchian Channel Indicator for MetaTrader4 is a trend indicator created by Richard Donchian for accurate capturing of price movements and trends. Many traders mistake this indicator for Bollinger Bands indicator as they both can indicate the market’s trend and volatility.
Default calculation of Donchian Channel Indicator MT4
Donchian Channel Indicator MT4 operates so well on daily charts and makes use of daily time frame. It calculates the highest high or lowest low of the past 20 days. The trader can adjust the settings for the number of days. Hence, to understand this channel is quite easy:
1. The highest high (default) of the past 20 days is Upper band.
2. The lowest low (default) of the past 20 days is the Lower band.
3. The moving average that estimates the average of the previous 20 days low/high is the Middle line/band.
Donchian Channel Indicator Mt4 Trading Strategies
A major reason why you may need to combine Donchian Channel trading strategies with others is to lessen the false entry/exit signals, thereby resulting in a better knowledge of trading opportunities.
Here is a list of some strategies for trading on the Donchian Channel Indicator MT4 platform:
1. Trend movement
2. Support and resistance levels
3. An oscillator for filtering entries and exits
4. Volatility breakout
Trend movement with Donchian Channel Indicator MT4
Trading requires patience to be able to achieve success. The rules of the game are:
1. When the price closes above the upper band (default high), it is time to buy.
2. When it closes below the lower band (default low), then it is time to sell.
Here are the rules for entry, stop loss and exit.
In a bullish trend:
1. If the price does not break underneath the lower line on the earlier dip, you can buy a break beyond the upper line
2. Position the stop loss by the lower line
3. 1:3 risk-reward ratio should be targeted at a minimum
In a bearish trend:
1. If the price does not break beyond the upper line on the earlier spike, you can sell a break underneath the lower line
2. Position the stop loss by the upper line
3. 1:3 risk-reward ratio should be targeted
Support and Resistance Levels with the Donchian Channel
Donchian Channel Indicator MT4 displays support and or resistance. This it does with a long line, either at the higher or lower part of the indicator mt4.
A confluence area is formed when the price fails to go high or low. Because it is usually not easy to cross confluence areas, they turn out to be support and resistance areas.
Oscillators with Donchian Channels MT4 Indicator
An oscillator is used for spotting divergences amid the price and the oscillator. A good Oscillator to consider for timing exits is RSI (Relative Strength Index). Usually, when there are fake movements, it is basically not from the oscillator but price.
1. When RSI is at a level of more than 50, it is bullish.
2. When RSI is at a level of less than 50, then it is bearish.
Donchian channel indicator MT4 measures volatility. It detects any volatility that is irregular before a breakout. There are a lot of trading opportunities offered by volatility.
Volatility Breakout Rules with the Donchian Indicator
Every trader needs to be mindful of periods when the Donchian upper and lower lines narrowed smaller than normal. This occurs before a vast market break. That’s happening before a significant market break.
Whenever the measured move is not as significant as the contraction, then it is best to ignore the next breakout. The rules for Entry, Exit, and Stop Loss are:
After you have set the entry, buy the break beyond the upper band, for a bullish trend. The next step is setting the stop loss at the earlier swing lower. The stop loss is a critical and compulsory situation for every trade.
Finally, you could set the take profit using a 1:3 risk-reward ratio. Or better still, trailing stops can be used to right the upcoming trend as long as possible.
Limitation of Donchian Channels Indicator MT4
A shortfall of the Donchian Channels Indicator MT4 can be evident with Low Float Stocks.
Low Float Stocks:
A low float stock is an implication that the numbers of the remaining shares are low. Stocks like that usually have a low daily and average volume. The major disadvantage of using the Donchian channels is that it does not feature in the most current market volatility. It gives an equal weighting to all data points.
Therefore when a low float stock goes high on a run, the lower bounds do not show the movement of price swiftly enough. This risks offering back more paper profits than required.
How to uninstall/delete the Donchian Channel Indicator MT4 from your MT4 charts
Installing or deleting (uninstalling) the Donchian Channel Indicator MT4 can be achieved with the following steps:
1. Before applying this indicator in your MetaTrader 4 client, you will need to select the chart.
2. On your Metatrader4, click the chart right Button.
3. Choose indicator list.
4. Select this indicator and delete
Installation of Donchian Channel Indicator MT4
1. Download the Indicator: Donchian channel indicator for MetaTrader 4
2. Copy and paste Donchian channel indicator mt4 files to your MT Directory/expert/indicators
3. Now start or restart MT4 client
4. Choose the Chart and Timeframe you wish to test your MT4 indicators
5. On your Metatrader 4 Client, search for Customs Indicators
6. Now right click on Donchian channel indicators MT4
7. Attach this Donchian channel indicator MetaTrader 4 to a chart
8. Adjust the indicator setting as desired and/or click ok
Donchian Channel Indicator MT4 is now accessible on your charts.
Conclusion of Donchian Channel Indicator MT4
This article is an attempt to portray the basis and limitation of the Donchian channel indicator for MetaTrader4. Traders with the need for finding trends and volatility may have to consider using this indicator. Donchian channel indicator MT4 is capable of giving false signals just as other indicators. Traders may filter these signals when they combine Donchian Channel Indicator with other analysis tools/indicators.
And for that, you can use this platform with various other unique indicators and tools available, which can help traders make gains. Take advantage of the available tools from this link and take your trade to the next level.