A Donchian channel is refreshingly simple: draw the highest high and the lowest low over the last N days (say 20 or 55). The result is a corridor around price. There's no smoothing and no formula beyond max and min — it just marks the recent extremes.
How it's read
The classic use is breakout: price pushing above the top of the channel means a new N-day high (read as strength/an emerging uptrend), and dropping below the bottom a new low. This was the core of the famous Turtle trend-followers in the 1980s — a mechanical "buy the breakout, exit on the opposite channel" system.
The connection
Breakout channels are a form of trend following — the same family as our Trend Following (200-day MA), which uses a moving average instead of a channel to decide in-trend vs. cash. Trend following is one of the better-documented effects in the literature, but it pays with many small losing whipsaws between the few big trends — which is exactly why you judge it on a full, costed backtest and its drawdown, not on a lucky chart.
Educational material — not investment advice.