Before it had a name, the Donchian channel breakout was just a stubborn idea: buy when price does something it hasn’t done in weeks — make a new high — and get out when it makes a new low. It is the rule set at the heart of the famous Turtle experiment, and it remains the cleanest expression of breakout trading there is: no indicator math, no interpretation, just recent highs and lows.
The exact rules we tested
- Universe: ten megacaps — AAPL, MSFT, NVDA, AMZN, META, GOOGL, TSLA, AMD, AVGO, NFLX — on daily bars.
- Entry:buy when today’s close exceeds the highest high of the previous 20 trading days.
- Exit: sell when the close drops below the lowest low of the previous 10 days — or on an 8% stop-loss, whichever comes first.
- Sizing: 20% of equity per position, up to five concurrent positions.
The asymmetry is deliberate and old: a 20-day lookback to get in, a 10-day lookback to get out. Slow to believe a breakout, quicker to admit it died.
What the numbers mean
Breakout systems have a personality, and it’s visible in this record. They lose small and often: most 20-day highs don’t turn into runaway trends, and each one that fizzles costs a little. They win rarely and large: the whole system is a bet that occasionally a new high is the firstnew high of a very long move, and that one position pays for the parade of failed ones. If the win rate above looks low to you, that’s not a bug in the test — it’s the shape of the strategy. The honest question is never “how often does it win?” but “is the average winner big enough, and is the drawdown survivable while you wait?”
The 8% stop deserves a note. The classic Turtle rules sized positions by volatility instead of using a fixed percentage stop; our template deliberately uses the simpler fixed stop because it’s what most retail traders actually do. It changes the character: tight fixed stops on volatile single names get hit by ordinary noise, converting some would-be winners into small losses.
Edits worth trying
- “Use 55-day entry and 20-day exit” — the slower classic Turtle setting; fewer, bigger trades.
- “Drop the fixed stop” — let the 10-day low do all the exiting, and watch what happens to both drawdown and winners.
- “Only enter when the market itself is above its 200-day” — breakouts against a falling tide are the expensive kind.
Every edit is a plain-English sentence in the lab, and every rerun takes seconds. When one survives your best attempts to break it, put it where opinions go to be tested: the public forward ledger.