What is Price Channel?
The Price Channel draws three lines on the price chart. The upper line is the highest high of the last 20 bars, the lower line is the lowest low, and the middle line, the basis, sits halfway between them. Unlike most channels it can be displaced forwards or backwards by a set number of bars, so the channel formed by one stretch of bars can be read against the bars that came after it.
The Price Channel marks the extremes of a recent window. It does not say whether price will break out of them, hold inside them, or which way the next move will go.
How to use Price Channel
- The edges. The upper and lower lines are the window's high and low. Price pressing against one edge is making or nearing a new extreme for the window.
- The basis. Price above the midpoint is trading in the upper half of its recent range, below it in the lower half.
- Displaced channel. With a positive Offset, the channel from earlier bars is drawn under later ones, so current price can be compared with where the range used to be rather than where it is now.
- At an offset of 0. The lines are the same as Donchian Channels of the same length. Donchian is the one to use if you want the breakout reading, where price leaving the current channel is the event.
These are ways to read the channel, not entry signals on their own.
Settings
| Setting | Default | What it changes |
|---|---|---|
| Length | 20 | Bars the highest high and lowest low are taken over. Shorter gives a tighter channel that moves often; longer gives a wider one that changes less. Minimum 1. |
| Offset | 0 | Shifts all three lines forwards (positive) or backwards (negative) by this many bars, from -500 to 500. At 0 each value is drawn on the bar it was calculated for. |
Adjust the window and the displacement in the indicator settings.
Calculation
Each bar, the indicator takes the extremes of the last Length bars and their midpoint:
upper = highest high of the last 20 bars
lower = lowest low of the last 20 bars
basis = (upper + lower) / 2The window includes the current bar, so at an offset of 0 the current bar's high can never be above the upper line or its low below the lower one: a new extreme moves the line with it. Only with a displacement does price appear outside the channel.
Offset changes where the lines are drawn, not how they are calculated. The two edges share a colour, the basis has its own, and the channel is left unshaded.
Limitations
- The edges are step lines. The upper and lower lines only move when a new extreme enters the window or an old one leaves it, so they can jump on a single bar.
- No volatility adjustment. The channel is set by two single bars, the highest and the lowest, so one spike widens it for the whole length of the window.
- Offset is easy to misread. A displaced channel shows where the range was, not where it is. A negative offset draws values on earlier bars than the ones they were calculated from, which looks better in hindsight than it could have been in real time.
- The live candle moves. The current bar's high and low can still set a new extreme, so its values change until that bar closes.
- It is not a strategy. It marks a range. It gives no entry, exit, sizing or risk management on its own.
Frequently asked questions
The Price Channel is the highest high and lowest low of the last Length bars, with a line at their midpoint. It outlines the recent trading range on the price chart and can be displaced sideways by a set number of bars.
At an offset of 0 they draw the same three lines. The difference is that the Price Channel is meant to be displaced, so it can be read as a reference level against later bars, while Donchian Channels stay on the bars that formed them because their use is the breakout, price leaving the current channel. Donchian also shades its channel; the Price Channel does not.
Yes. The indicator declares two inputs: Length, default 20 with a minimum of 1, and Offset, default 0, from -500 to 500. Open the indicator's settings on the chart to change them.
Values on closed bars are not revised; the current bar's lines move while that candle is live and settle when it closes. Offset needs care, though. A negative offset draws each value on bars before the ones it was calculated from, so the channel there uses bars that had not happened yet at that point. It is not revised, but it is not what a trader could have seen at the time.
Start at 0, which shows the range price is currently in. A positive offset is the common choice for a displaced channel, since it draws the older range under newer bars without using future data. Avoid negative offsets for anything you intend to trade from.
Use the Add to chart button at the top of this page. It opens BTC/USDT on Binance in the Altrady Charts terminal with the built-in Price Channel already applied. On any other market, open the indicator picker on the chart and choose Price Channel from the Volatility group.