Donchian Channel Breakout

Entry Logic

• Exact Entry Trigger: Enter long on a close above the upper Donchian Channel (e.g., 20-period high). Enter short on a close below the lower Donchian Channel (e.g., 20-period low).
• Confirmation: High volume on the breakout.
• Timeframe: Daily.
• Market Condition: Start of a new trend.

Exit Logic

• Profit Targets: Exit on a close below the middle line of the channel for longs, or above for shorts.

Stop Loss Structure

• Hard Stop: The middle line of the Donchian Channel.

Risk Management Framework

• Risk Per Trade: 2% of account capital.

Position Sizing Model

• Sizing Approach: Volatility-based sizing.

Trade Filtering

• Market Conditions to Avoid: Low-volatility markets.

Context Framework

• Trend Direction: The breakout determines the direction.

Trade Management Rules

• Let Profits Run: This is a trend-following system.

Time Rules

• Session Notes: A classic swing trading strategy.

Setup Classification

• A+ Setup: A breakout from a multi-month narrow channel.

Market Selection Criteria

• Instruments: Commodities and futures (as used by the Turtle Traders).

Statistical Edge Metrics

• Win Rate: 30-40%.
• Profit Factor: 2.5+.
• Expectancy: High, due to large winning trades.

Failure Conditions

• Strategy Fails: On false breakouts.

Psychological Rules

• Discipline: Tolerate a low win rate and follow the system with rigid discipline.

Advanced Components

• Optimization: The channel period (e.g., 20, 55) can be optimized.

Location

• Strongest: At the start of major, long-lasting trends.