Donchian Channel Breakouts with Midline Exits

Summary

This note explains a basic trend-following strategy based on Donchian channels. The upper and lower bands are formed from the highest high and lowest low over a lookback window, with the middle line between them. Wider bands indicate a broader recent price range, while narrower bands indicate a smaller one. The document gives 20 periods as the default channel setting and uses a 50-bar example to explain the calculation.

The entry rules buy when a position-free strategy closes above the upper band and sell short when it closes below the lower band. Long positions exit when the close falls below the middle line; shorts exit when it rises above it. The note describes the strategy concept and links to a Python research notebook, but provides no backtest results or performance evidence. It presents the breakout logic as a simple example and does not discuss position sizing, risk controls, transaction costs, or how results vary by instrument and lookback choice.

Key ideas

• Donchian bands use rolling highs and lows to define a price channel.
• A close above the upper band opens a long position, while a close below the lower band opens a short position.
• The middle line serves as the exit trigger for both long and short trades.
• The document explains the rules and links to an implementation notebook but gives no performance results.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.