Turtle Trading Explained

Turtle Trading Explained

"I always say that you could publish my rules in a newspaper and no one
would follow them.The key is consistency and discipline.Almost anybody
can make up a set of rules 80% as good as what we taught our people.What
they couldn't do is give them the confidence to stick to those rules
even when things are going bad." Richard Dennis, Father of the
Turtles.Mid 1983. Famous commodities (futures) speculator Richard Dennis
argues with his buddy Bill Eckhardt about whether great traders can be
trained, or whether it is an innate ability. To settle the argument of
nature versus nurture, they decide to try and teach 13 beginners to
trade, and if they can master the rules, fund them with large trading
accounts. These beginners, whittled down from over 1000 applicants, are
known as the 'Turtles'. Over the next four years, the Turtles earned a
collective compound rate of return of over 80%. Argument settled.

Turtle Trading - What Markets?
As they were trading million dollar-plus accounts, the Turtles had to
choose liquid instruments, including US Treasury Bonds, Coffee, Cocoa,
Sugar, Cotton, Gold SIlver, Coper, major currencies and Indices, and
Oils.

Turtle Trading - Position Sizing
All good trading systems pay strict attention to position sizing. The
control of risk is the elementary building block upon which good trading
is based, and Turtle Trading is no exception. The Turtles used
'Volatility normalization' - a fancy way of saying that the more
volatile an instrument, the smaller the trade, meaning that every
instrument would (hopefully) carry the same dollar risk.This is where
the much-talked-about 'N' comes from.
'N' is the 20-day exponential moving average of the ATR (true range).
The formula to calculate 'N' is:-
(19 x Previous Days N + TR) / 20
Next step - figure out the 'Dollar Volatility Adjustment'. This is
simply (N x Dollars per point). This was done so the size of a 'Unit'
could be calculated. Each 'Unit' would account for 1% of the trader's
equity, in other words, a Unit equals:-
1% of account / Dollar Volatility

As an example, assume an instrument that moves $100 per point. Assume
also that the account size is $10,000. For simplicity, assume N = 0.1.
A Unit then , is:-
(1% x $10,000) / (0.1 X $100)
i.e. $10.

Turtle Trading - Risk Adjustment
Turtles had 'notional' sized accounts - although an account might
notionally start the year at $1,000,000, in the case of a loss of 10%,
the size of this account would be reduced by 20%. In other words the
trader would have to trade as if he only had $800K, not $900, until such
time as the account had got back to the starting figure.

Turtle Trading - Trade Entries
Turtles entered trades based on two systems, a 20 day breakout system,
and a 55 day breakout system. To use the first system, if the market
traded during the day or opened thru the 20 day high or low, that would
be a signal to enter.One Unit would be bought/sold to initiate the
position.If the previous signal would have resulted in a successful
trade, this signal would be ignored, in an attempt to avoid
'whipsawing'.
The second system fired signals if price exceeded the 55 day high or
low, and these signals were always taken, irrespective of previous
success/failure.

Turtle Trading - Adding to Positions
Once in a position, Turtles would add a Unit every 1/2 'N' advance, up
to the maximum number of units they were permitted (4 in a single
instrument, 6 in 'Closely Correlated' markets, such as Oil and Crude, 10
units in 'Loosely Correlated' markets, 12 units overall in a single
direction).
The prime directive in all of this was CONSISTENCY. As the majority of
trades failed, it was essential to be in on ALL of them, so as not to
miss the few huge winners that made the profits.

Turtle Trading - Stops and Exits
No trade was allowed to incur more than 2% of the account equity in risk
- in other words the Turtles used mental stops no more than 2 'N' away
from the position.
To exit from a System 1 trade, if the 10 day high (short trade) was
broken, that meant close the trade. Likewise if the 10 day low (long
trade) was broken, close th etrade. To exit from a System 2 trade, a 20
day breakout in the opposite direction would signal the end of the
trade.

Turtle Trading - does it work?
The Turtle system undoubtedly works. However, it requires iron willpower
to follow the rules, and not to try and 'bend' the mechanics of the
strategy. Most people are not mentally equipped to deal with the
constant losses, even though they are handsomely offset by the
occassional huge winner. If you have that kind of personality, perhaps
Turtle Trading is for you!

Comments:
Paul Cote
Turtle System from Russel Sands book Turtle Secrets, Tradewins: Buy the
highest high of last 20 days with stop at lowest low of last 10 days.
Sell the lowest low of last 20 days and stop out on highest high of
last 10. The system works pretty well. It certainly beats moving
average systems I believe. I have tried optimizing and of course you
can curve fit a number for every commodity, for every time, but I think
the 20/10 works well enough. This leaves you flat part of the time.
From Lebeau and Lucas, this is a vast improvement over the stop and
reverse systems.


Manfred
Newsgroups: misc.invest.futures
From: "Manfred"
Date: Thu, 1 Jul 2004 17:23:25 -0600
Local: Fri, Jul 2 2004 7:23 am
Subject: Before you pay TurtleTrader.com

Here is an excerpt from Curtis Faith, one of the original Turtles trained by
Richard Dennis, et. al., concerning Michael Covel, the sole operator of
TurtleTrader.com. Faith offers the trading rules for free that Covel at
TurtleTrader.com offers for $1000. See the site, www.originalturtles.org
for additional details, in addition to the quote below:

One of the sad realities of the trading industry and futures trading in
particular is that there are far more people making money selling systems
and "ways to make money trading" than there are people actually making money
by trading.

There are many "famous traders" who don't make money as traders. They make
money selling new trading systems, seminars, home study courses, etc. Many,
if not all, of these so called "experts" can't trade and don't trade the
systems that they sell.

Yes, this is also true of those selling the Turtle Trading Rules. Consider
the major sellers: the first, a web site, TurtleTrader.com, and the second,
a former turtle. Here's what they won't tell you:

TurtleTrader.com - A web site run mainly by one guy (an admittedly talented
web marketer that also has a pharmacy site and a site that sells personality
tests), TurtleTrader.com purports to have the actual Turtle Trading Rules
and sells them to you for about $1,000. The site is filled with huge amounts
of information about trading and bills itself as the "No. 1 Source for Trend
Following Worldwide".

What they don't tell you is that the site is run by a guy who doesn't even
trade his own rules - or trade at all for that matter - has never been a
successful trader, yet purports to be an expert on the "Turtle Trading
Rules" and trend following.

His rules, while reasonably close to the actual rules, differ in material
ways from those taught by Richard Dennis.

You won't get any expert advice from the guy who runs TurtleTrader.com. All
you will get is the regurgitation of advice from other traders not tempered
by the experience of a successful trading career. Paying for advice from
this source is a lot like hiring a blind guide.

In the final analysis, TurtleTrader.com is not any better than the other
scams and system selling hucksters he warns about. It is a site run by a guy
who appears to be more interested in taking his customers money than he is
in their success with the system he sells; someone who misrepresents himself
as an expert in trend following without mentioning that he doesn't trade.

Before dropping your money at TurtleTrader.com, carefully read what's
available for free at www.originalturtles.org