The Donchian Channel is a trend-following indicator that uses a fixed look-back period to display two price bounds: the highest high and the lowest low within that window. The resulting price channel envelopes recent price action, and the channel width reflects recent volatility.
Market participants watch for price moves that touch or cross the channel bounds. A breakout occurs when price moves above the upper bound or below the lower bound. Some practitioners interpret breakouts, or narrowing channel width, as evidence of changing trend strength or volatility, rather than as precise trading actions. The indicator is commonly used with other tools to confirm trend direction, support and resistance levels, or momentum signals.
Because it relies on a fixed window, the Donchian Channel can lag during rapid moves and may be sensitive to the chosen look-back period. It is one of several price-channel tools used to visualize ranges and breakouts, and it is most informative when used as part of a broader analysis rather than as a standalone guide.
If the n-period Donchian Channel uses 20 days, a trader observes prices rising above the 20-day high, followed by a return toward the channel, to assess whether a trend is continuing and volatility is increasing.
Moving average · Bollinger Bands · Keltner Channel · Price channel · Breakout · Volatility · Trend following