Donchian Breakout

Overview

The Donchian Breakout strategy is the direct descendant of Richard Dennis’s famous Turtle Trading system from the 1980s. It enters when price breaks above or below the 20-period channel — a signal that a new trend may be establishing.

In the original 2026-04 backtest the SHORT side appeared profitable in both bull and bear samples. A fresh out-of-sample re-test on 2026-06-28 — same product engine, 18-cell sweep with a 5-axis adversarial kill — found this regime-robustness did not hold: the apparent edge was a bear-beta artifact, not a directional skill that survives unseen data. The backtest numbers below are reproducible, but we no longer present this as a live directional edge.

How It Works

1. Channel calculation — highest high and lowest low over the past 20 bars (look-ahead safe: uses bars up to but not including the signal bar)
2. LONG signal — current close breaks above the 20-bar high (upward momentum)
3. SHORT signal — current close breaks below the 20-bar low (downward momentum)
4. Entry — at the open of the next bar after the break
5. Exit — TP 10% / SL 8%

Why It Works (Thesis)

The 20-period channel captures significant price movements that break out of consolidation zones. When price violates a multi-week high or low, it often signals the beginning of a directional move rather than random noise. The SHORT side looked stronger in the original sample because crypto assets frequently exhibit sharp, fast sell-offs — channel breaks to the downside tend to have stronger follow-through than upside breaks in a market prone to liquidation cascades.

That thesis is plausible, but the fresh OOS re-test (2026-06-28) showed the measured SHORT profit was driven by a falling market (short positions making money simply because price went down) rather than by a regime-independent breakout edge. Strip out that bear-beta and the standalone edge does not survive — so treat the thesis as unconfirmed.

Results

Market regime	Profit factor (SHORT)
Bull market	1.27
Bear market	1.06

These are the original 2026-04 backtest numbers and are reproducible. They are not evidence of robustness: a fresh out-of-sample re-test on 2026-06-28 failed regime-robustness, attributing the result to bear-beta rather than a regime-independent edge.

Default Parameters

Parameter	Value
Channel period	20 bars
Exit period	10 bars
Stop loss	8%
Take profit	10%

Caveats

• Failed fresh out-of-sample regime-robustness (2026-06-28). The earlier “profitable in both regimes” claim did not survive re-testing — the edge read as bear-beta, not a directional skill. Status downgraded from verified to testing for this reason.
• Lower profit factor in bear markets (1.06) — thin edge that would likely disappear under transaction costs in high-frequency trading.
• LONG direction not separately validated.
• Classic trend-following: suffers during choppy, range-bound markets.
• Not live-tracked on OKX. Backtest only — “verified” here means the backtest is reproducible, not that the live directional edge is confirmed.