Donchian Channel

A Donchian channel is an indicator that draws the highest high and the lowest low over the last N periods as an upper and lower band, with a midline between them. Created by Richard Donchian, it frames price by its own recent extremes rather than by an average, so the bands are literally the range the market has held.

Its defining use is breakout trading: a close (or trade) above the upper band is a new N-period high — a long signal — and a break below the lower band a new low for shorts. This is the engine behind classic trend-following systems, including the Turtle Traders’ rules, where entering on fresh range breakouts aims to catch large trends and accept many small false breaks.

Donchian breakouts are fully mechanical and a primitive in Secuora’s AI backtester. As a baseline, a Donchian-breakout rule on BTC in Secuora’s research at /strategy lost money over twelve months after costs — breakout systems pay for many failed breaks while waiting for the rare runaway trend, and on this sample the trend never paid the bill.