The Origin of Donchian Channels: Richard Donchian’s Legacy
The Donchian Channel is a cornerstone of breakout and trend-following strategies. But few traders know the fascinating history behind this indicator—or the man who created it.
This post explores the origin of Donchian Channels, their creator Richard Donchian, and how his revolutionary thinking laid the foundation for many modern trading systems.
Who Was Richard Donchian?
Richard Donchian (1905–1993) was a pioneer in technical analysis and a strong advocate of rules-based trading. Often referred to as the Father of Trend Following, Donchian’s systematic approach to trading was decades ahead of its time.
In the 1950s, while most traders relied on gut feeling or news events, Donchian introduced the concept of mechanical trading systems—based purely on historical price action.
The Birth of the Donchian Channel
Donchian’s breakout strategy was simple:
“Buy when the price breaks above the high of the last 20 days. Sell when it breaks below the low of the last 20 days.”
This rule formed the basis for what we now call the Donchian Channel, which plots the highest high and lowest low over a specified period (commonly 20 days).
It provided clear signals for:
- Entry and exit points
- Trend direction
- Support and resistance zones
- Stop-loss and trailing exit levels
Why It Was Revolutionary
At the time, Donchian’s strategy challenged the norm by:
- Eliminating emotion from trading decisions
- Using pure price action to generate signals
- Demonstrating that simple rules could outperform complex opinions
His work later inspired the Turtle Traders, one of the most famous trading experiments in history.
Richard Donchian’s Trading Philosophy
- Let profits run, cut losses quickly
- Use consistent, rule-based entries and exits
- Focus on long-term trends over short-term noise
These principles still guide many modern trend-following systems.
Donchian’s Influence on Modern Trading
Donchian’s work led to:
- The development of breakout strategies in futures, forex, and equities
- The foundation of algorithmic and quantitative trading systems
- The widespread adoption of the Donchian Channel in platforms like TradingView, MT4, and Thinkorswim
Today, his legacy lives on through traders who value logic, discipline, and simplicity.
Timeline Snapshot
| Year | Milestone |
|---|---|
| 1905 | Richard Donchian is born |
| 1930s | Begins trading and researching market trends |
| 1950s | Develops rules-based breakout systems |
| 1970s | Donchian Channel concept popularized |
| 1993 | Donchian passes away, leaving a lasting impact |
Conclusion
The origin of Donchian Channels is more than a technical story—it’s a legacy of discipline, innovation, and clarity in trading. Richard Donchian showed the world that simple rules, when followed consistently, could generate powerful results.
If you’re using the Donchian Channel today, you’re following in the footsteps of one of trading’s greatest minds.
FAQs
Q1: What inspired Richard Donchian to create the channel?
He wanted a simple, rules-based system to remove emotion from trading.
Q2: Was the Donchian Channel originally used for futures?
Yes, it was primarily developed for commodities and futures trading.
Q3: How many periods did Donchian originally use?
20 periods (trading days) was the standard setting.
Q4: Did Donchian write any books?
While he wrote newsletters and papers, much of his work is preserved through interviews and archived materials.
Q5: Is the Donchian Channel still used today?
Absolutely. It’s a staple in breakout and trend-trading strategies worldwide.
