20-Day Breakout Strategy: A Practical Guide With Examples

The 20-day breakout (often called System 1) is the aggressive engine of the Turtle Trading experiment. It is designed to ensure that you never, ever miss a major trend. If a market moves, System 1 will be in it.

The price you pay for this responsiveness is "Whipsaws." System 1 enters early. It gets fake-out often. It takes many small jabs to the face. But when the market truly rips (think Nvidia in 2023 or Bitcoin in 2017), System 1 is in from the ground floor.

The Core Rules (No ambiguity allowed)

• Entry Rule: Buy when price exceeds the High of the preceding 20 days. Sell Short when price drops below the Low of the preceding 20 days.
• Stop Loss: 2 × ATR (N) from the entry price.
• Exit Rule: Exit Long when price touches the 10-day Low. Exit Short when price touches the 10-day High.

Deep Dive: The Entry (Don't Wait for Close)

A common mistake beginners make is waiting for the daily candle to close before entering. Turtles do not wait. If the 20-day high is $50.00, and the price ticks to $50.01 at 10:00 AM, you buy. Why? Because in a strong momentum breakout, the price might close at $55.00. If you wait for the close, you missed $5.00 of profit and your risk (stop distance) is now huge. Use Stop-Limit or Stop-Market orders to enter automatically.

Deep Dive: The 10-Day Exit (The Give Back)

Notice the asymmetry. You enter on a 20-day signal, but exit on a 10-day signal. This is crucial. The faster exit allows you to lock in profits before the trend completely reverses.

The Psychology of the Exit: This is the hardest part.

Let's say you bought at $100. Price goes to $150. You feel like a genius. Then the trend slows. The 10-day low moves up to $140. Price drops to $140. You exit. You feel bad because you "lost" the $10 from the peak ($150 to $140). Get over it. You cannot catch the exact top. System 1 ensures you catch the meat, not the bones.

The "Last Breakout" Filter (Advanced Rule)

The original Turtles had a special rule for System 1 called the "Filter Rule." Rule: Ignore a System 1 breakout signal if the previous System 1 breakout signal for this market was a winning trade.

Why? The logic was that markets rarely trend twice in a row without a consolidation. If you just caught a big trend, the next breakout is likely a fake-out. However, if the filtered breakout turns into a massive trend, you re-enter at the System 2 (55-day) level. This is a fail-safe. Note for beginners: You can ignore this rule at first. Taking every signal is simpler.

Step-by-Step Trade Anatomy

Let's walk through a hypothetical trade in Gold Futures.

Day 1: The Breakout

Gold 20-day High is $2000. Price hits $2000.10. You buy 1 Unit. ATR is $20. Stop is at $1960 (2N).

Day 3: The Add-on (Pyramiding)

Price moves to $2010 (increase of 0.5N). You buy another Unit. You move stops for BOTH units up to $1970. (Protecting profits).

Day 20: The Trend

Price is $2200. You are sitting on huge open profits. You do nothing. You just update your trailing stop (the 10-day low).

Day 45: The Exit

Price drops. It touches the 10-day low at $2150. You sell everything. Trade result: Big Win.

Common Errors with System 1

• Second Guessing: "This breakout looks weak." You don't know that. Weak-looking breakouts often become strong trends because no one believes them.
• Exiting Early: "I made 20%, I'll cash out." Then the market goes up another 80% and you cry. System 1 requires you to stay until the 10-day low is hit.
• Re-entering Late: You got stopped out. The market breaks out again 2 days later. You are "scared" so you don't buy. That second breakout was the real one.

System 1 is a grind. It has a lower win rate than System 2 (often 35-40%). But it catches the V-bottoms that System 2 misses. If you want to be the "First in, First out," this is your strategy.

Verify the levels yourself on the Dashboard.

A quick, realistic walkthrough (the kind your brain actually needs)

Let’s do a simple play-by-play, because most “strategy explanations” are missing the only part that matters: what you do on a normal Tuesday. Picture this: you scan your list once a day. One market is breaking above its recent highs. Your job is not to guess the top or get poetic. Your job is to follow the steps you already decided on a calm day. If you want the full “start here” path, the hub is Articles.

1. Check the level (the breakout point) and confirm it’s a real “new high” for your chosen window.
2. Calculate your risk using ATR. If volatility is huge, your position will be smaller. That’s not a bug.
3. Place the entry and the stop. Put the stop in the system, not in your imagination.
4. After entry, stop watching every tick. If you must stare at something, stare at your rules.
5. Exit by rule: either a reversal level hits, or your stop hits. Your mood is not on the list.

Sometimes you’ll get stopped out quickly. That’s normal. The system is built around the idea that a few big trends pay for a bunch of small “nope” trades.

Risk rules that keep you in the game

Here’s the unglamorous truth: most people don’t “lose to the market.” They lose to their own sizing. They take a normal strategy and turn it into a stress test by risking too much when they feel confident and too little when they feel scared. Turtle-style risk rules try to remove that swingy behavior.

• Pick a fixed risk per trade (a small percent of your account). Write it down.
• Use ATR for stop distance so you’re not placing stops inside normal noise.
• Size from risk: wider stop → smaller position; tighter stop → larger position.
• Cap your total exposure so one theme (or one sector) can’t dominate your portfolio.

If this feels like “too much math,” good news: it’s simple math. And it’s worth it. Start with ATR sizing.

The boredom problem (and how to stop sabotaging yourself)

A lot of traders don’t have a strategy problem — they have a boredom problem. Trend following is often quiet. That silence tricks you into “improving” the system with extra trades. That’s how people turn a good strategy into a messy hobby.

• Run scans on a schedule (daily or weekly). Outside that time, you’re done.
• Use alerts instead of constant chart-watching.
• Journal rule-breaking as a separate “expense.” It’s usually larger than commissions.
• If you need action, do something else: exercise, build tools, read. Not another trade.

A simple checklist you can follow without thinking

Quick FAQ (because your brain will ask these anyway)

• Do I need a ton of indicators? Nope. Price levels + risk rules carry the system. Extra indicators mostly add extra ways to second-guess yourself.
• Is a low win rate “bad”? Not for trend following. Many versions win less than half the time and still do fine because the winners can be much larger than the losers.
• Do I need to watch charts all day? Not if you trade daily rules. You can run a boring schedule and let the rules do the heavy lifting. The Dashboard is literally built for quick scanning.
• What should I read next? Start with Turtle Trading Explained → Donchian Channels → ATR for Turtle Trading → System 1 vs System 2. Or just scroll to the Further reading section below.

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Common mistakes (and the exact fix for each)

Most “strategy failures” are just process failures in a trench coat. Here are the usual suspects, plus what to do instead.

• Mistake: Moving stops because you “feel” it’s about to bounce. Fix: Decide stops before entry and treat them like a contract you signed with your calmer self.
• Mistake: Taking every signal in the same sector/theme. Fix: cap exposure and diversify; correlation loves to ambush people.
• Mistake: Changing parameters after a losing streak. Fix: lock rules for a fixed evaluation window (e.g. 8–12 weeks).
• Mistake: Ignoring costs. Fix: assume worse fills on breakouts and test with conservative assumptions.
• Mistake: Overtrading because you’re bored. Fix: schedule scans; outside scan time, do literally anything else.