Basic Techniques  |  FEB 2002

Donchian Breakouts by David Penn

Donchian Breakouts by David Penn Buy strength and sell weakness with this simple yet effective breakout trading strategy. There may be as many different forms of the Donchian breakout as there are moving average crossover or pattern recognition strategies. This is not without good reason. As the authors of The Ultimate Trading Guide note, “Traders are always excited about leading-edge technology, but inevitably fall back on the classical approaches.” Donchian breakout–oriented systems, in which trades are initiated when current prices exceed the high or low price of a given period, are chief among such classical approaches. In fact, elements of the Donchian breakout have found their way into a number of trading systems, ranging from the Turtle trading system to a number of mechanical price-range breakout approaches. Many who have extended this breakout strategy have cautioned that there is more to trading than n-period breakouts. While this is absolutely true, it need not detract from the effectiveness of Donchian breakouts in terms of entering trades.

by David Penn