Trend following · Intermediate · Daily monitoring for breakouts
Donchian Breakout
How it works, and when it doesn't.
A new 20-day high means price has overcome resistance. Institutions chasing performance buy the breakout, creating a self-fulfilling momentum effect.
Price 759.8 inside 55-day channel [732.7, 781.6]. No breakout. MLP=51%.
Why it works
Donchian Breakouts capture price breaking out of a recent trading range. The premise is that a new N-day high is an information event — it means the market has accepted a new higher value, and momentum will follow.
The signal logic
- Long when price breaks above the 20-day highest high
- Exit when price falls below the 10-day lowest low
- No shorting — cash on the sideline when not in trend
When it fails
Breakout failures in range-bound markets. Every new high gets sold immediately, creating a string of whipsaw losses.
- Best market
- Breakout environments, post-consolidation surges
- Worst market
- Low-volatility range-bound markets like 2015
Backtest
| Sharpe ratio | 0.53 |
| Annual return | 6.5% |
| Worst drawdown | -29.0% |
| Trades in the backtest | 3 |
Backtest on daily bars, positions taken the bar after the signal (no look-ahead). Few trades: treat the ratios as anecdotal.
Donchian Breakout, live.
Re-scored after every close.
The platform runs this and 32 other strategies against the live tape each day — with the evidence behind every number.