Donchian channel

The Donchian channel is an indicator used in market trading developed by Richard Donchian, a pioneer of mechanical trend following systems. It is build by two bands, like Bollinger Bands. The two outer bands are plotted as the highest high and lowest low for a set period, originally 20 days, with the optional middle band calculated as the average of the two.

The Donchian channel is a useful indicator for seeing the volatility of a market price. It is a simple trend-following breakout system. If a price is stable the Donchian channel will be relatively narrow. If the price fluctuates a lot the Donchian channel will be wider.  Its primary use, however, is for providing signals for long and short positions.

The signals derived from this system are based on the following basic rules:

1. When price closes above the Donchian Channel, buy long and cover short positions.
2. When price closes below the Donchian Channel, sell short and liquidate long positions.

Source:
http://en.wikipedia.org/wiki/Donchian_channel
http://www.investopedia.com/terms/d/donchianchannels.asp
http://www.incrediblecharts.com/indicators/donchian_channels.php