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Donchian Channel BreakoutTurtle System 1 & 2

Evidence: ModerateBeginnerTrend Following · Breakout

When price closes above the highest high of the previous N bars, you take a position in that direction. In the Turtle programme, System 1 was a 20-bar breakout and System 2 a 55-bar one.

The exit is not a fixed target — it is a breakout of the 10-bar (or 20-bar) channel on the other side. This is deliberately a low win-rate, high payoff-ratio design: the profit comes from a handful of large trends, and most trades are small losses.

Category
Trend Following · Breakout
Timeframe
D1 primary · H4 secondary
Suitable pairs
EURUSD · GBPUSD · USDJPY · AUDUSD · USDCAD · XAUUSD
Session
Signal at the D1 close · execute in any liquid session
Indicators / tools
Donchian channel (20 / 55 to enter, 10 / 20 to exit) · ATR(20) · optional ADX(14)

Valid setup

S01 · DONCHIAN 20 BREAKOUT — VALID SETUP EURUSD · D1 · trend-following · synthetic illustration of the rule, not real data LONG 1.0644 1.0739 1.0835 1.0930 1.1026 1.1121 1.1217 CONSOLIDATION — equal highs = resting liquidity CHANNEL HIGH = trigger ENTRY = next bar open SL = entry − 2×ATR(20) +2R reference only 1R +2R 1 2 3 4 5 6 7 ① Prior impulse leg — trend already exists ② Range builds: equal highs = stops resting above ③ Final test of range low (shake-out) ④ BREAKOUT CANDLE — closes ABOVE the channel A wick through the line is NOT a break. ⑤ Entry on the NEXT bar open (no intrabar fill) ⑥ Continuation — hold, do not target ⑦ Exit when close < DC lower 10 1.1058 1.0929 1.0914 1.0865 DC upper 20 DC lower 20 DC lower 10 (exit) range starts breakout trailing

Exact rules

Entry

  • Upper Donchian(20) = the highest high of the previous twenty bars, excluding the current one.
  • Buy when a bar closes above the upper channel. Sell when it closes below the lower one.
  • Enter at the next bar's open — a market order after the close confirms, not a pending stop.
  • Optional quality filter, to be tested rather than assumed: require the close to be more than 0.25 × ATR(20) beyond the channel. A marginal close is not acceptance.
  • Optional Turtle whipsaw filter: if the previous 20-bar breakout was profitable, skip the next 20-bar signal and switch to the 55-bar system.

Stop loss

  • Initial stop = entry − 2 × ATR(20) for a long, entry + 2 × ATR(20) for a short.
  • In Turtle terms 1N is one ATR; the 2N stop was the original rule.
  • Risk 0.5%–1% per trade. Position size = (account × risk %) ÷ (2 × ATR in currency).
  • Never widen a stop. Widening a stop is removing risk management, not doing it.

Take profit / exit

  • No fixed take profit. The exit is a close below the lower Donchian(10) for a long.
  • The reason: the distribution of trend durations is fat-tailed. A fixed target cuts off the largest winners, and those winners are the entire edge.
  • If you need R-based reporting: take 50% at 3R and trail the rest. Log that as a separate variant — mixing the two ruins the attribution in a backtest.

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.