What it means
Donchian Channel is the simplest possible breakout system: upper channel = highest high over N periods, lower channel = lowest low over N periods. Default 20-period. Created by Richard Donchian, popularized by the Turtle Traders system (Dennis & Eckhardt, 1980s) which used 20-period and 55-period Donchian breakouts to generate famously profitable trend-following returns.
Why it matters
Donchian is the canonical breakout system. Simple, mechanical, no parameters to optimize beyond the lookback. The Turtle Traders' decade-long profitability proved that mechanical breakout systems can produce institutional-quality returns. Modern variants underlie many quantitative trend-following strategies.
How to use it
Trend-following: long break above 20-day high, short break below 20-day low. Exit on opposite-direction break or trailing stop. Donchian outperforms in trending markets; underperforms badly in ranges (whipsaw). Combine with ADX filter to activate only during clear trends.
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