Strategy Library

Breakout

Turtle channel breakout

The rules Richard Dennis and Bill Eckhardt taught their Turtle traders in 1983. You enter when price breaks the highest high (or lowest low) of a set number of days, size every position so one normal day's move is the same share of the account, cut a loser at a fixed volatility distance, and let a winner run until a shorter break the other way. There are no profit targets: a few large trends pay for many small losses.

IntermediateLiquid futures in the original (bonds, currencies, indices, metals, energy, softs); the sources do not cover spot forex, CFDs or cryptoDaily barsD1
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Example 01

Turtle channel breakout on a chart

XAUUSD · D120-day highbreak, ride, exit

20-day high: 2,368.33N, 20-day ATR: 7.03Stop, entry minus 2 N: 2,354.28Exit, 10-day low: 2,478.30Sample candles, not market data

The rules

Setup
  • Work out N, the 20-day average true range, for each market
  • Size one unit so that 1 N equals 1% of the account
Entry
  • System 1: enter one unit when price trades one tick beyond the 20-day high (long) or low (short), and skip it if the last 20-day breakout would have been a winner
  • If you skipped a System 1 signal, take the 55-day breakout instead so you do not miss a big move
  • Or System 2: enter one unit on every 55-day breakout, with no filter
Stop
  • 2 N from the entry, so no trade risks more than 2% of the account
Target
  • None: the system exits on its exit signal, not at a target
Manage
  • Add a unit every half N in your favour, up to 4 units, and raise the earlier stops by half N each time
  • System 1 exits on a 10-day low (long) or high (short); System 2 on a 20-day low or high; all units exit together

Common mistakes

  • Taking profits early. The rules call exits the hardest part. Leaving early cuts off the trends that pay for the losses.
  • Skipping signals. Picking which breakouts to take turns a system into guesses.
  • Sizing by feel. Without N-based sizing a quiet market and a wild one carry very different risk.
  • Too much in one theme. Several related markets (gold and silver, a few USD pairs) can be one big trade. The rules cap units across them.

When it's off

  • Out when the 2 N stop is hit
  • Out when the opposite 10 or 20-day breakout prints

Words to know

Breakout
Price moves through a support, resistance or range edge and a candle body closes beyond it. A wick beyond that closes back inside is a sweep, not a breakout.
ATR stop
A stop placed a multiple of the Average True Range away from the entry or a swing, so its distance follows how much the market is moving. ATR measures range, not direction.
R multiple
1R is what you lose if the stop is hit, and results are measured as multiples of it: making twice your risk is +2R, a full stop is -1R. R needs the initial stop; without a recorded stop it is unknown, not zero.
N
The 20-day average true range: one normal day's move.
Donchian channel
The band between the highest high and lowest low of the last set number of days.
Pyramiding
Adding to a position as price moves in your favour.

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

  • How do you work out N, and do you size every trade from it or use a fixed lot?
  • Do you log the System 1 breakouts you skipped, so you know whether the last one would have won?
  • What is your total open risk across related markets?
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What testing exists

The Turtle rules come with stories of their results, not independent tests. Studies of breakout and trend rules in general are mixed, and none tests these exact rules.

Before you trust a backtest

  • Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
  • The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
  • Include spread and commission, and practice on dates you have not looked at, before you trust a result.

Sources