The Donchian channel, developed by Richard Donchian, is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen.

The Donchian channel is a useful indicator for assessing the volatility of a market price. If volatility is low, the Donchian channel will narrow. If volatility is high, the Donchian channel will be wider.

Its primary use, however, is for providing signals for long and short positions. If a security trades above its highest n periods high, then a long is signaled. If it trades below its lowest n periods low, then a short is signaled.

Source: Investopedia.com