Breakout
Donchian Channel Breakout
Trade new highs and lows, the classic trend-capturing breakout.
Breakout trading buys strength and sells weakness, betting that a move to new extremes continues. Donchian channels make this objective: a close above the N-bar high is a long, below the N-bar low a short. It's the engine behind the famous Turtle system.
How it works
Donchian channels plot the highest high and lowest low over a lookback. Entering on a break to new extremes catches the start of trends, while a shorter opposite channel trails the exit. A trend filter avoids buying breakouts against the bigger picture.
Entry rules
- ▸Go long on a close above the upper Donchian channel (new N-bar high).
- ▸Go short on a close below the lower channel.
- ▸Optionally filter by a higher-timeframe trend.
Exit & risk
- ▸Trail the exit with a shorter opposite-direction channel.
- ▸Cap initial risk with an ATR-based stop.
- ▸Exit on a close back inside the channel (failed breakout).
Best for
Strong trending markets and instruments prone to sustained moves. The main cost is false breakouts in ranges, which trend filters and trailing exits manage.
Build this strategy in Algovex
Every component of this strategy is a node in Algovex — drop them on the canvas, connect the logic, backtest on a real engine, and export to code. No programming required.
Key terms
Frequently asked questions
What is a Donchian breakout strategy?
It buys new N-bar highs and sells new N-bar lows using Donchian channels, trailing the exit with a shorter channel, the core of the Turtle trading system. Algovex lets you build and backtest it without code.