Donchian channel: breakouts, settings and Pine Script v6 code

What it measures

A Donchian channel draws the highest high and the lowest low of the last N bars, with a middle line halfway between them. It is about as simple as an indicator gets: the channel shows the recent range, and price closing beyond it marks a new N-bar high or low.

Richard Donchian, often called one of the fathers of trend following, used channel breakouts in the mid-20th century. The idea became widely known through the "Turtle" trading experiment of the 1980s, which is often cited as using 20- and 55-day breakouts for entries and shorter channels for exits.

The formula in words

1. Upper band = the highest high of the last N bars, including the current one.
2. Lower band = the lowest low of the last N bars.
3. Middle line = (upper band + lower band) ÷ 2.
4. A breakout is a close above the previous bar's upper band (or below the previous bar's lower band).

The "previous bar" detail in step 4 matters. Because the current bar's high is part of the current upper band, a close can never be above the current band, only above the band as it stood one bar earlier.

How traders read it

• Breakout entries. A close above the upper band is a new N-bar high, which trend followers read as a possible start or continuation of a trend.
• Channel exits. A shorter channel is often used for exits: for example, enter on a 20-bar breakout and exit when price closes below the 10-bar low.
• Stops and risk. The opposite band, or the middle line, gives a natural stop. Because channels can be wide, risk per trade is usually controlled with position size rather than a tight stop.
• Range and volatility. A narrowing channel means the market has been quiet; a widening one means it is travelling.

Common settings

Some platforms exclude the current bar from the channel; this script includes it and compares breakouts with the previous bar's band, which gives the same signals.

Pine Script v6 code

The complete, self-contained script is below. Copy it into a new indicator in TradingView's Pine Editor, or download the .pine file.

//@version=6
indicator("Donchian channel breakouts", shorttitle = "Donchian", overlay = true)

len      = input.int(20, "Channel length", minval = 1)
exitLen  = input.int(10, "Exit channel length", minval = 1)
showExit = input.bool(false, "Show the exit channel")

upper     = ta.highest(high, len)
lower     = ta.lowest(low, len)
mid       = math.avg(upper, lower)
exitUpper = ta.highest(high, exitLen)
exitLower = ta.lowest(low, exitLen)

// Breakouts compare the close with the previous bar's channel: the current high is always inside its own channel.
breakUp      = close > upper[1]
breakDown    = close < lower[1]
newBreakUp   = breakUp and not breakUp[1]
newBreakDown = breakDown and not breakDown[1]

upperPlot = plot(upper, "Upper", color = color.new(color.blue, 0))
lowerPlot = plot(lower, "Lower", color = color.new(color.blue, 0))
plot(mid, "Middle", color = color.new(color.gray, 40))
fill(upperPlot, lowerPlot, color = color.new(color.blue, 94), title = "Channel")
plot(showExit ? exitUpper : na, "Exit upper", color = color.new(color.orange, 30))
plot(showExit ? exitLower : na, "Exit lower", color = color.new(color.orange, 30))

plotshape(newBreakUp, "Breakout up", shape.triangleup, location.belowbar, color.new(color.teal, 0), size = size.small)
plotshape(newBreakDown, "Breakout down", shape.triangledown, location.abovebar, color.new(color.red, 0), size = size.small)

alertcondition(newBreakUp, "Donchian breakout up", "{{ticker}} closed above the previous upper Donchian band ({{interval}})")
alertcondition(newBreakDown, "Donchian breakout down", "{{ticker}} closed below the previous lower Donchian band ({{interval}})")

The channel and its middle line are drawn on the price chart, with an optional shorter exit channel. Triangles mark the first close beyond the previous bar's band, so a strong trend doesn't produce a signal on every bar, and the same events are available as alert conditions.

Add it to your chart

1. Open any chart on TradingView and open the Pine Editor.
2. Create a new indicator, delete the template code and paste the script.
3. Click Save, then Add to chart. Change lengths and levels from the indicator's settings.

Stuck on an error? See how to add a Pine Script indicator to TradingView.

Pitfalls

• False breakouts. Many breakouts fail and reverse back into the range, especially on intraday charts. Breakout systems typically have low win rates and depend on a few large trends; test with costs before drawing conclusions.
• Comparing with the current band. close > ta.highest(high, 20) is never true. Use the previous bar's band, as the script does.
• Wide stops. Using the opposite band as a stop can mean a large distance. Control risk with position size, not by moving the stop closer.
• Optimising the length. It's tempting to search for the "best" length on past data. Stick to round numbers and check neighbours.

Related reading

• 8 backtesting mistakes that make a strategy look better than it is
• Pine Script strategy.exit(): stop loss and take profit that behave as you expect
• ATR Stop-Loss Calculator (free tool)
• Drawdown Recovery Calculator (free tool)

The script is an educational example: test it on your own markets before relying on it. Indicators describe the past; they don't predict the future. Trading involves substantial risk of loss and is not suitable for every investor. Edgoro is a software tool, not a broker or financial adviser: nothing it produces is investment advice, and past or backtested performance does not guarantee future results.