Even in the distant seventies 20 century, the famous trader Richard Donchian developed its own indicator for Technical Analysis. This trend indicator, which operates on the basis of the price corridor.
I know that these "corridor" Indicators Binary Options very popular among new traders. They are easy to understand and apply, and the percentage of profitable signals are always high. And already get experience, traders successfully combine these tools with other indicators in order to improve the quality of their forecasts.
Let's see how Donchian Channel Indicator It looks at a live graph:
Indicator Donchian Channels It displayed two curved lines, which form a corridor of price. The upper boundary - the line resistance, the lower limit - line support. Their borders - a high and low prices. Channel Donchian as it goes around the schedule, it is always inside.
Donchian Channels indicator signals on a live chart:
- You need to find the point of breakdown of the price corridor. But this is not happening visually, because the line of the channel all the time round the price of the asset and the sample does not go beyond them. The breakdown of the conditional. I marked on the screenshot above.
- If there is a breakdown of the lower bound, then the option is open PUTAnd, conversely, if there is a breakdown of the upper limit, it is necessary to open an option CALL.
Time of exercise is best to choose on 2-4 spark advance.
Like all similar channel indicators, Dolchian Channels also suffers from the presence of false signals as a result of border breaks due to high volatility in the market. For this reason, I recommend using additional indicator tools, as well as candlestick analysis patterns.
The first filtering option is to plot two Donchian Channels on the chart at the same time, but the first one will be with a period in 20, and the second one will be broader with a period of 55.
This approach to the Donchian Canal strategy was used by traders who got the name "turtles" because of their trading style. But such a tactic is in no way suitable for trading binary options. But on the stock market and Forex, it shows excellent results!
In addition to the two Donchian channels with periods 20 and 55, I recommend adding the Relative Strength Index RSI and making a deal until the end of the candle on the hour timeframe.
A deal for an increase with such a strategy should be concluded only when the candle pierces upwards both Donchian top channels, and the RSI index is above its middle level in 50. Short trades are made in the same way, but quite the opposite.
This indicator is more suitable for use in combination with trend strategies. But for the trade in the flat its effectiveness is already greatly reduced. However, it will be a convenient addition for beginners who have not yet learned how to build support and resistance lines on their own.