Price Channel

The Price Channel or Donchian's Four Week Rule is a simple and effective trend following, channel breakout system.


Channel breakout systems were shown by research to be one of the top trading systems to generate significant profits

Louis Lukac's research from 1975 to 1986 compared 23 trading systems. Moving averages and channel breaklouts came out as the top performers and Lukac suggested a channel breakout as the best starting point for technical trading. (Lukac, Louis; The Financial Review, November 1990).


The Price Channel is a simple breakout system. As with all trend following systems, the Price Channel works well in up trends or down trends, but doesn't work well in a sideways channel. The signals derived from the Price Channel are based on the following basic rules:

As a trend following system the Price Channel indicator is not meant to catch tops or bottoms. Trend traders may want to extend the period to eight weeks to wait for significant trend signals. Similarly, some traders shorten the time period to a more sensitive 1 or 2 weeks for liquidation purposes.


The following signals are offered by the Price Channel indicator:

These signals should, of course, be combined with the use of other indicators to provide confirmation. For example, a relatively simple, yet effective, approach to exiting a trade based on a price channel would be to watch for a break in the long-term trend.

Some Ideas for Applying Shorter Time Periods:

Further Information

Also see Channels & Envelopes, Keltner Channels, and Bollinger Bands.


Andrews' Pitchfork is plotted on a price chart as follows:

  1. First, identify a significant reversal point (high or low) and this becomes Pt. A.
  2. Draw a line (shown in red) from this point to the next significant reversal point; at Pt. B.
  3. Then plot a line from a significant point early in the trend (Pt. C) bisecting the first line (in red) half way between Pts. A and B. This is the Median Line or "handle" of the Pitchfork.
  4. Now, draw two lines parallel to the Median Line, one starting from Pt. A and the other from Pt. B. These form the "tines" of the Pitchfork.
  5. Presto! Andrews' Pitchfork.

This is a quick introduction to the Pitchfork technique; Dr. Andrews' price study methods were typically much more complex than what I've shown here. He also counted waves using what he called the "0-3/4 pivot count rule" and the "5 count probability rule."


Watch for reversals when the price approaches or penetrates the lines of the Pitchfork. As with any trendline, the more often support or resistance is confirmed the more reliable the line can be considered. In the example above, the lower channel managed to contain most of the price activity - not perfectly - but enough to indicate that the channel was indeed providing important support and resistance.

Also see Trendlines and Breakout Patterns