Donchian Channels

Donchian channels are a volatility and breakout indicator built from three lines: an upper band marking the highest high of the past N periods, a lower band marking the lowest low over the same window, and a middle line at their average. The classic setting is 20 periods, popularised by Richard Donchian and later by the Turtle Traders, whose rules bought breaks above the upper band and sold breaks below the lower one. The channel widens when price swings grow and narrows in quiet markets, so its width doubles as a simple volatility gauge. Traders use touches of the outer bands as breakout signals, the middle line as a trend filter or trailing reference, and the bands together as a frame for range-bound strategies. It differs from Bollinger Bands, which are built from a moving average and standard deviations rather than raw highs and lows.