Donchian Breakout Backtest in Python: Institutional Trend-Following

The Donchian Channel Breakout (made famous by the Turtle Traders) remains one of the few mathematically robust quantitative strategies in crypto derivatives due to persistent volatility clustering and momentum regimes.

1. Donchian Band Formulas & ATR Volatility Normalization

Upper Band: Upper_t = max(High_{t-N}, ..., High_{t-1}). Lower Band: Lower_t = min(Low_{t-N}, ..., Low_{t-1}). Stop distance: Distance = k * ATR(14). Position size: Size = (Equity * RiskFraction) / Distance.

Python: Vectorized Donchian Breakout with ATR Risk Capping

import numpy as np

def run_donchian_breakout_strategy(high, low, close, n_lookback=20, atr_multiplier=2.0):
    upper = np.zeros_like(close)
    lower = np.zeros_like(close)
    signals = np.zeros_like(close)
    
    for i in range(n_lookback, len(close)):
        upper[i] = np.max(high[i-n_lookback:i])
        lower[i] = np.min(low[i-n_lookback:i])
        
        if close[i] > upper[i]:
            signals[i] = 1   # Long Breakout
        elif close[i] < lower[i]:
            signals[i] = -1  # Exit / Short
            
    return signals

Frequently Asked Questions