All TermsConcept

Breakout

A breakout is when price decisively moves outside a defined price level — typically a recent N-bar high or low, a chart pattern boundary, or a Bollinger Band. Breakouts are taken as signals that a new trending regime is starting.

Donchian breakouts

The most-quoted breakout strategy is the Donchian channel: buy when price closes above the highest high of the last N bars (typically 20–55), exit on the lowest low of the last M bars. See Donchian Breakout.

False breakouts

Most breakouts fail. The cost is small — exit on a tight stop — but the rare winners are huge. Donchian breakouts have win rates of 30–40% but profit factors of 1.5–2.0 thanks to outsized winners.

Volatility filters

Trade only breakouts that fire when ATR is rising. Quiet markets produce false breakouts; expanding volatility tends to mark genuine regime shifts.

Strategies that use Breakout

Donchian Breakout

Buy the highest high of the last N bars — the original turtle-trader strategy.

Squeeze Breakout

Trade the breakout of a Bollinger Band squeeze — entries only when volatility expands.

Related Terms

ATR (Average True Range)

ATR measures volatility by averaging the true range — the largest of today's high-low, |high-close[1]|, or |low-close[1]| — over N bars.

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