Original Turtle Trading Rules: Chapter 6: Exits

The Turtles used breakout based exits for profitable positions.

There is another old saying: “you can never go broke taking a profit.” The Turtles would not agree with this statement. Getting out of winning positions too early, i.e. “taking a profit” too early, is one of the most common mistakes when trading trend following systems.

Prices never go straight up; therefore it is necessary to let the prices go against you if you are going to ride a trend. Early in a trend this can often mean watching decent profits of 10% to 30% fade to a small loss. In the middle of a trend, it might mean watching a profit of 80% to 100% drop by 30% to 40%. The temptation to lighten the position to “lock in profits” can be very great.

The Turtles knew that where you took a profit could make the difference between winning and losing.

The Turtle System enters on breakouts. Most breakouts do not result in trends. This means that most of the trades that the Turtles made resulted in losses. If the winning trades did not earn enough on average to offset these losses, the Turtles would have lost money. Every profitable trading system has a different optimal exit point.

Consider the Turtle System; if you exit winning positions at a 1 N profit while you exited losing positions at a 2 N loss you would need twice as many winners to offset the losses from the losing trades.

There is a complex relationship between the components of a trading system. This means that you can’t consider the proper exit for a profitable position without considering the entry, money management and other factors.

The proper exit for winning positions is one of the most important aspects of trading, and the least appreciated. Yet it can make the difference between winning and losing.


Tur t l e Ex i t s

The System 1 exit was a 10 day low for long positions and a 10 day high for short positions. All the Units in the position would be exited if the price went against the position for a 10 day breakout.

The System 2 exit was a 20 day low for long positions and a 20 day high for short positions. All the Units in the position would be exited if the price went against the position for a 20 day breakout.

As with entries, the Turtles did not typically place exit stop orders, but instead watched the price during the day, and started to phone in exit orders as soon as the price traded through the exit breakout price.

These are Difficult Exits

For most traders, the Turtle System Exits were probably the single most difficult part of the Turtle System Rules. Waiting for a 10 or 20 day new low can often mean watching 20%, 40% even 100% of significant profits evaporate.

There is a very strong tendency to want to exit earlier. It requires great discipline to watch your profits evaporate in order to hold onto your positions for the really big move. The ability to maintain discipline and stick to the rules during large winning trades is the hallmark of the experienced successful trader.

Original Turtle Trading Rules: Foreword
Original Turtle Trading Rules: Introduction
Original Turtle Trading Rules: Chapter 1: A Complete Trading System
Original Turtle Trading Rules: Chapter 2: Markets: What the Turtles Traded
Original Turtle Trading Rules: Chapter 3: Position Sizing
Original Turtle Trading Rules: Chapter 4: Entries
Original Turtle Trading Rules: Chapter 5: Stops
Original Turtle Trading Rules: Chapter 6: Exits
Original Turtle Trading Rules: Chapter 7: Tactics
Original Turtle Trading Rules: Chapter 8: Further Study