We have already discussed the Donchian Channel indicator in our last post. The next indicator that is available in Zerodha Kite is Donchian Width indicator (DW). It’s a less known and less used indicator but Zerodha has cleverly introduced this in their new Kite interface.
How To Add Donchian Width Indicator?
Select the Donchian Width from the list of STUDIES and this will open the parameters window in Zerodha Kite. Keep the default HIGH PERIOD or 20 and the default LOW PERIOD of 20. Click DONE. This will attach the Donchian Width indicator in your Zerodha Kite chart.
Donchian Width Formula:
The formula for this indicator is very simple. It is the difference between the high and low of the Donchian Channel. So when the difference between the high and low of Donchian Channel increases, DW indicator also increases and when the difference between the high and low of Donchian Channel decreases, DW also decreases.
Usage Of DW Indicator:
The main usage of DW indicator is measuring the volatility of the market. When the DW increases, the volatility also increases and when the DW decreases, volatility also decreases. Now how to use this increase or decrease of volatility in real life?
In a low volatile market, traders need to apply smaller stops and they can use some lag in the indicators as the price reversals are not so fast. On the other hand, in a highly volatile market, traders must use wider stops and the price reversals and very fast, hence using lagging indicators can make your entry delayed.
So we have learned the basics as well as the formula and the usage of Donchian Width indicator. It is typically helpful in judging market volatility and changing your trading style according to the market. For other indicators, you may see our technical indicators section.