Donchian channel

An indicator with no smoothing and no statistics in it. The upper line is the highest price reached in the last N periods, the lower line is the lowest, and the middle line is the average of the two. It is named after Richard Donchian, whose trend following work in the middle of the twentieth century used exactly this construction.

The lookback is the entire indicator. A short window sits close to price and is redrawn constantly; a long one sits far away and moves rarely. Because both lines are extremes, they stay perfectly flat until either a new extreme is made or an old one drops out of the window, so long horizontal stretches are a property of the construction rather than an observation about the market.

The tautology inside it is worth stating plainly. Price touching the upper line is the definition of a new N period high, so a breakout of the channel and a new extreme are the same event described twice, and the channel confirms nothing that the price series did not already say. The twenty period setting circulates as a default because a widely published trend following system used it, which makes it a convention with a history rather than a tested parameter. Compared with a Keltner channel or Bollinger Bands, it reacts to single extreme prints where those react to averages and dispersion.