Courses / Volatility and Volume Indicators

Donchian Channels and Breakout Systems

The highest high and lowest low over N periods, the basis of classic trend following.

Donchian Channels plot the highest high and lowest low of the last N periods (commonly 20). A close above the upper line is a breakout. The famous Turtle trading system used 20 and 55 day breakouts.

They keep rules mechanical: buy new highs, exit on a break of a shorter-term low. Trend following wins big in trends and loses small in ranges.

Expect many small losses and a few large wins. Position sizing by ATR is essential.

Key takeaways

• Highest high and lowest low of N periods
• Mechanical breakout rules
• Many small losses, a few large wins

Quiz

• Donchian Channels use: Answer: Highest high and lowest low. They track range extremes.
• Trend following typically has: Answer: A low win rate with large winners. Few big winners pay for many small losses.
• Sizing by ATR helps to: Answer: Normalise risk across markets. It scales to volatility.

Educational content, not financial advice.