Donchian channels

Donchian channels are lines that delineate the highest high and lowest low over a specific lookback period. They are named after Richard Donchian, who tested and popularized certain breakout trend-following techniques in the 1960s.

The blue lines surrounding price in are 14-bar Donchian channels, which show the highest 14-week high and lowest 14-week low at any given point. Because the stochastic indicator measures the most recent closing price relative to the range of the last 14 weeks, high readings occur when price
hits the upper Donchian channel. Similarly, low stochastic readings ccur when price tags the lower Donchian channel. If the market starts to trend upward, as it did in April 2002, the upper Donchian channel line will move up more quickly than the lower channel line. This expansion or stretching of the two channel lines, which means the market is making repeated higher highs (look at April and November 2002, for example), is an indication of a trend.