Donchian Breakout (Breakout)
Buys when price breaks above the highest close of the previous 20 bars and sells when it breaks below the lowest close of the previous 20 bars.
How It Works
- Track the highest and lowest close of the previous 20 bars — the Donchian channel.
- Buy when today's close beats the 20-bar high: price has just done something it hasn't managed in the whole window, often the start of a trend.
- Sell when the close falls below the 20-bar low, handing the trend back once the range breaks the other way.
Worked example. The highest close of the previous 20 bars is 104. Today's close prints 104.8 — a breakout — so the strategy buys. Weeks later the 20-bar low has risen to 110 and a sell-off closes at 109.5, below it, closing the trade around +4.5%.
The Math Behind The Indicators
Everything runs on closing prices of the traded timeframe: P is a close, Pt today's close, and N counts bars — one bar is one candle of that timeframe, so 20 bars on a 1h chart is 20 hours.
- Price Channel (Rolling High / Low)
- The highest and lowest close over the previous N bars — the edges of the recent trading range. Closing above the channel top means price just beat every close in that window (a breakout); the channel bottom marks recent support.
- Example: If the previous 5 closes were 100, 103, 101, 102, 104, the channel spans 100 to 104. A close at 105 breaks above the top; a close at 99 breaks below the bottom.