Hi, I am Mohak, Senior Quant at QuantInsti. In the following video, I take a classic breakout idea, Donchian Channels, and show how to turn it into code you can trust, test it on real data, and compare a few clean strategy variants. My goal is to make the jump from “I get the concept” to “I can run it, tweak it, and judge it” as short as possible.
What we cover in the Video
The indicator in plain English. Donchian Channels track the highest high and lowest low over a lookback window. That gives you an upper band, a lower band, and a middle line. I also show a small but important step: shift the bands by one bar so your signals do not peek into the future.
Three strategy shapes.
- Long-short, one window (N). Go long when the price closes above the upper band, go short when it closes below the lower band. Stay in the trade until the opposite signal arrives.
- Long-only, one window (N). Enter on an upper-band breakout. Exit to cash if the price closes below the lower band.
- Separate entry and exit windows (N_entry, N_exit). A Turtle-style variant. Use a slower window to enter and a faster window to exit. This simple asymmetry changes behaviour meaningfully.
Bias control and realism.
We use adjusted close prices for returns, shift signals to avoid look-ahead bias, and apply transaction costs on position changes so the equity curve is not a fantasy.
Benchmarking properly.
I put each variant next to a buy-and-hold baseline over a multi-year period. You will see where breakouts shine, where they lag, and why exits matter as much as entries.
What you will learn
- How to compute the bands and wire them into robust entry and exit rules
- Why a one-line shift can save you from hidden look-ahead bias
- How different window choices and shorting permissions change the character of the strategy
- How to read equity curves and basic stats like CAGR, Sharpe, and max drawdown without overfitting your choices
Why this matters
Breakout systems are transparent, testable, and easy to extend. Once the plumbing is correct, you can try portfolios, volatility sizing, regime filters, and walk-forward checks. This is the scaffolding for that kind of work.
Download the Code
If you want to replicate everything from the video, download the codes below.
Next Steps
- Pressure-test the idea. Change windows, tickers, and date ranges. Check if results hold outside your calibration period. Try a simple volatility position sizing rule and see what it does to drawdowns.
- Portfolio view. Run a small basket of liquid instruments and equal-weight the signals. Breakouts often behave better in a diversified set.
- Walk-forward logic. Split the data into in-sample and out-of-sample, or do a rolling re-fit of windows. You want robustness, not a one-off lucky decade.
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Disclaimer: This blog post is for informational and educational purposes only. It does not constitute financial advice or a recommendation to trade any specific assets or employ any specific strategy. All trading and investment activities involve significant risk. Always conduct your own thorough research, evaluate your personal risk tolerance, and consider seeking advice from a qualified financial professional before making any investment decisions.
