Turtle Trend Following with Donchian Breakouts and Volatility-Based Position Sizing
Summary
This overview describes a Turtle-style trend-following system built around Donchian channel breakouts. A move above the channel's recent high triggers an initial long position, while a move below its recent low triggers a short. The system estimates volatility with true range, smooths it into N, and sizes a unit so its expected price fluctuation corresponds to 1% of account equity. It adds units after favorable moves of 0.5N, up to a stated maximum of four units.
Risk management uses a 2N adverse move from the last entry or addition to close the position. Profits are exited when price crosses the opposite boundary of a shorter Donchian channel. The article explains the rationale and gives an implementation example, with a historical BitMEX Bitcoin futures backtest configuration, but no performance results. It identifies the main limitation as giving back floating profits during reversals and poor behavior in choppy markets. The code's ATR period and sizing implementation vary from some of the prose description, so the precise rules should be checked before reproducing the example.
Key ideas
- Donchian channel breakouts provide the system's trend entry signals.
- True range is smoothed into a volatility estimate used to size positions relative to account equity.
- The system adds units after favorable half-N moves and caps total exposure at four units.
- A two-N adverse move triggers an exit, while a shorter Donchian channel supplies a profit exit.
- Trend systems may surrender unrealized gains in reversals and can struggle in sideways markets.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.