Price Channels

The range of the last few bars, drawn as a channel.

What it measures

The upper line is the highest high of the last periods bars and the lower line the lowest low. The dashed middle is halfway between.

How traders read it

Traders read a close at a new channel high as a breakout, the idea behind the classic “Donchian” breakout systems. The channel is flat while the price stays inside it and steps when a new extreme is set.

Formula

upper  = highest high of the last periods bars
lower  = lowest low of the last periods bars
middle = (upper + lower) / 2

The window includes the bar that just closed, so its high can equal the upper line but never exceed it. Breakout rules usually compare against the channel from the bar before.

Settings and output

Call: priceChannels(periods)

Setting	Chart default
`periods`: Periods	20

What you get: a list of 3, in this order: 1. a number; 2. a number; 3. a number.

Warm-up: with priceChannels(20), it asks for 20 bars of history and a run-up of 1, and its first value came on bar 21 of the example data.

Chart

Price Channels drawn by its own code on example prices

The prices are made up, hourly, and the same on every page, so the chart shows how the indicator behaves, not how a market behaved.

In an algorithm

let previousUpper;

function onIntervalClose() {
  const channel = priceChannels(20);
  if (previousUpper !== undefined && CLOSE > previousUpper && OPEN_POSITIONS_COUNT === 0) {
    openPosition("BUY", { quantity: 10000, stopLoss: channel[2] });
  }
  previousUpper = channel[1];
}