Rayome, David L.; Jain, Abhijit
September 2008
Review of Business Research;2008, Vol. 8 Issue 4, p187
Academic Journal
This paper analyzes the 20 day breakout system based on the work of Richard Donchian and recently popularized by trend traders and "Turtle" followers. Data from twenty seven years, from 1980 until early 2007, is filtered through a program created on VBA programming for Excel. The results are mixed, one half of the breakout systems fail miserably and the other half produce positive returns, although with tremendous volatility. Two of the models provide acceptable returns and merit further investigation. The results indicate that the breakout systems that provide positive returns may be dependent upon the use of trailing stops, and/or a pyramiding entry system, as much or even more than the channel breakout system itself. This is an indication that proper money management is as or more important than the entry signal. Trend trading with channel breakouts is experiencing renewed interest by the investing public. It is important that researchers investigate the validity of such a strategy. This study cannot lend credence to the successful claims of popular literature. The study does indicate that some potential does exist for positive returns, especially when the system incorporates good money management techniques.


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