Donchian Bands

Donchian bands are a technical analysis tool that uses three lines to show the price movement of a financial instrument or stock over a period of time: 

• Upper band: The highest price reached during the period
• Lower band: The lowest price reached during the period
• Middle line: The average of the upper and lower bands

Donchian bands can help traders identify trends and determine when to enter or exit a position. Here are some strategies that use Donchian bands: 

Breakout strategy

A bullish breakout occurs when the price closes above the upper band, and a bearish breakout occurs when the price closes below the lower band. 

Trend strategy

Traders enter long positions when the price moves above the middle line. 

Channel trading strategy

Traders enter long positions when the price moves back up from the lower channel line. 

Mean reversion strategy

Traders enter long positions when the price falls below the lower band, and exit when the price rises above the middle band. 

Donchian bands can be useful for both short-term and long-term trend measurement. However, they may not be effective in sideways or range-bound markets, and they don't provide information about the strength of a trend. Traders should use Donchian bands in conjunction with other technical indicators to confirm signals.