Much like the popular 1983 movie Trading Places starring Eddie Murphy, Turtle Trading began with a bet between multi-millionaire commodities traders Richard Dennis and Bill Eckhardt.
It all started in 1983 with a bet. Richard Dennis believed that you could teach people to be great traders. Bill Eckhardt disagreed, believing that genetics and intelligence were the primary factors of success.
To settle their argument, they decided to test it out for themselves. Dennis put an ad in the paper seeking traders - no experience required. After interviewing over 1000 applicants ended up with a group of about 20 diverse individuals. Some were Ivy-League grads and others hadn't gone to college. What followed was a true test of nature versus nurture.
After about a week of training, which included a simple set of guidlines and system rules, Dennis set up most traders with million dollar accounts to trade. Only after a week!
The experiment ended up being a success with the Turtles earning on average 80% per year. Dennis won the bet and proved that traders could be taught to be successful with a simple set of rules and money to trade with.
25 years later
More than 25 years later the Turtle system is still showing to be successful. With better technology, traders have been able to code the Turtle rules into a system that trades automatically. One such company that does this is DNA Technologies. They offer the public a professionally coded software program that trades the Turtle System automatically so you don't have to do a thing. They reported returns of 255% in 2008, even when the stock market was taking a huge dive. For more information, visit: www.OriginalTurtleTrader.com
Tuesday, February 10, 2009
Thursday, January 29, 2009
Automated Forex Software
Autotrading is becoming an interesting topic, especially in the Forex market. Metatrader is an example of a trading platform where you can code programs called Expert Advisors to Trade for you.
There are several advantages to using a trading software in the Forex market. Because the markets are open 24 hours a day it is impossible to always be watching the market. Automated forex software can be used to trade a system completely, or to assist in your discrentionary trading style manually.
Benefits of Automated Forex Software Systems:
Trading Software forces you to trade based on concrete rules. This eliminates the emotional and psychological aspects of trading, which I have always thought is a good thing. The mind is very complicated and it is very easy to see things that aren't really there or to find reasons why you think you should enter a trade or take profit or cut your losses. Many times you will get caught up in the moment, especially when volatility is high. You see the price move quickly and want to jump in and chase without any clear entry signals. Or you think price is way to high, it can't go any higher, but then it does. Trading software eliminates all of these problems.
Drawbacks of Automated Forex Software Systems:
Some traders believe that a program can't trade as well as they can. This may be true if you trade fundamentally. Other drawbacks include issues related to your computer and the internet connection. You need to make sure your computer is connected to a UPS system in case the power goes out. Ideally you should also have fiber optics for your internet connection because it won't go down in a power outage. Also make sure your computer is built to stay on for long periods of time. Servers tend to be best for this.
There are several advantages to using a trading software in the Forex market. Because the markets are open 24 hours a day it is impossible to always be watching the market. Automated forex software can be used to trade a system completely, or to assist in your discrentionary trading style manually.
Benefits of Automated Forex Software Systems:
Trading Software forces you to trade based on concrete rules. This eliminates the emotional and psychological aspects of trading, which I have always thought is a good thing. The mind is very complicated and it is very easy to see things that aren't really there or to find reasons why you think you should enter a trade or take profit or cut your losses. Many times you will get caught up in the moment, especially when volatility is high. You see the price move quickly and want to jump in and chase without any clear entry signals. Or you think price is way to high, it can't go any higher, but then it does. Trading software eliminates all of these problems.
Drawbacks of Automated Forex Software Systems:
Some traders believe that a program can't trade as well as they can. This may be true if you trade fundamentally. Other drawbacks include issues related to your computer and the internet connection. You need to make sure your computer is connected to a UPS system in case the power goes out. Ideally you should also have fiber optics for your internet connection because it won't go down in a power outage. Also make sure your computer is built to stay on for long periods of time. Servers tend to be best for this.
Saturday, January 24, 2009
Mechanical Trading System
Most successful FOREX traders use a handful of diverse trading strategies. Which strategy used may depend on the particular currency pair, recent price action or patterns, market volatility and/or a myriad of other variables.
The simple fact that a trader needs an arsenal of strategies suggests the need for at least one mechanical trading system.
The Turtle Trading System is a great example of a mechanical system that has proven successful over many years with many different securities. For the complete turtle rules, view our previous article: Original Turtle Trading Rules
In the recent past, the obstacles to develop, test and run a mechanical trading system were significant. Expensive, complex software platforms, coupled with costly real–time data feeds required a significant investment of time and money. In addition, the quantity and quality of brokers offering such services was limited.
Today, this is no longer the case. There are several free automated trading platforms available from a number of different brokers. One popular platform is MetaTrader 3.0, which uses the MQL II language to develop what MetaTrader calls an Expert Advisor. (In addition to MetaTrader 3.0, there is a newer version, MetaTrader 4.0. MetaTrader 3.0 is generally easier to learn by a non-programmer and is a better choice for a trader creating their first mechanical trading system).
Since this platform is free, and most introducing brokers offer demo accounts, it is an excellent opportunity for a FOREX trader to evaluate mechanical trading without incurring any upfront costs.
The simple fact that a trader needs an arsenal of strategies suggests the need for at least one mechanical trading system.
The Turtle Trading System is a great example of a mechanical system that has proven successful over many years with many different securities. For the complete turtle rules, view our previous article: Original Turtle Trading Rules
In the recent past, the obstacles to develop, test and run a mechanical trading system were significant. Expensive, complex software platforms, coupled with costly real–time data feeds required a significant investment of time and money. In addition, the quantity and quality of brokers offering such services was limited.
Today, this is no longer the case. There are several free automated trading platforms available from a number of different brokers. One popular platform is MetaTrader 3.0, which uses the MQL II language to develop what MetaTrader calls an Expert Advisor. (In addition to MetaTrader 3.0, there is a newer version, MetaTrader 4.0. MetaTrader 3.0 is generally easier to learn by a non-programmer and is a better choice for a trader creating their first mechanical trading system).
Since this platform is free, and most introducing brokers offer demo accounts, it is an excellent opportunity for a FOREX trader to evaluate mechanical trading without incurring any upfront costs.
Wednesday, January 21, 2009
Famous Trader, Richard Dennis, Now Uses Computer Auto Trade Program
For years, Richard J. Dennis lived by his wits in the commodity markets--and quite a living it was. His knack for the quick kill made him an estimated $200 million in the 1980s and brought him fame unmatched by any other futures trader. Then his instincts failed him. By the early 1990s, having lost tens of millions for his customers, he quit the business. Now, he's trading again, with a difference.
Instead of acting directly on his thoughts, theories, and impulses, Dennis translates them into computer programs. When those bits and bytes align with market prices, the computer orders a trade. Under an agreement with a third-party broker who controls most of his customer funds, Dennis must follow the system. No matter what his gut tells him, discretion isn't allowed. So far, the deal has paid off: With a 111% gain in 1996, Dennis once again ranked among the world's top-performing commodity traders. ''The left side of my brain has put the right side out of business,'' the soft-spoken 48-year-old explains.
HUGE LOSSES. Dennis' transformation to robo-trader could prove significant. In derivatives markets, taming traders is the preeminent risk-management problem--just ask Barings PLC or Sumitomo Bank Ltd. A computer system that limits potential losses has great appeal. In Dennis' case, his goal was to separate a brain loaded with money-making insights from the heart of a gunslinger. By the time he retired in 1988, he had shot himself in the foot by making unusually risky trades--purchasing huge quantities of options just before they expired and became worthless, for example. In one day, he lost $8 million in a soybean trade gone bad. Losses in his personal accounts paralleled those of his funds. Adding insult to injury, an early 1990s comeback attempt flamed out in months.
Now, the system curbs Dennis' tendency to go off on fliers by imposing strict risk parameters. In programming the computer to evaluate price, volume, and other market data in search of profitable trades, Dennis says he employs only strategies that have survived rigorous testing and proved successful in the past. While many traders employ computer models, such rigid systems remain more the exception than the rule; most traders keep some discretion.
Instead of acting directly on his thoughts, theories, and impulses, Dennis translates them into computer programs. When those bits and bytes align with market prices, the computer orders a trade. Under an agreement with a third-party broker who controls most of his customer funds, Dennis must follow the system. No matter what his gut tells him, discretion isn't allowed. So far, the deal has paid off: With a 111% gain in 1996, Dennis once again ranked among the world's top-performing commodity traders. ''The left side of my brain has put the right side out of business,'' the soft-spoken 48-year-old explains.
HUGE LOSSES. Dennis' transformation to robo-trader could prove significant. In derivatives markets, taming traders is the preeminent risk-management problem--just ask Barings PLC or Sumitomo Bank Ltd. A computer system that limits potential losses has great appeal. In Dennis' case, his goal was to separate a brain loaded with money-making insights from the heart of a gunslinger. By the time he retired in 1988, he had shot himself in the foot by making unusually risky trades--purchasing huge quantities of options just before they expired and became worthless, for example. In one day, he lost $8 million in a soybean trade gone bad. Losses in his personal accounts paralleled those of his funds. Adding insult to injury, an early 1990s comeback attempt flamed out in months.
Now, the system curbs Dennis' tendency to go off on fliers by imposing strict risk parameters. In programming the computer to evaluate price, volume, and other market data in search of profitable trades, Dennis says he employs only strategies that have survived rigorous testing and proved successful in the past. While many traders employ computer models, such rigid systems remain more the exception than the rule; most traders keep some discretion.
Tuesday, January 20, 2009
Turtle Trader Auto Software Program
Check out this new company providing turtle trader software at OrginalTurtleTrader.com.
OriginalTurtleTrader.com (DNA Technologies) uses the exact same rules the Original Turtles used, and they have tested their Turtle Auto Trading program on over 10 years of data with consistent returns.
DNA Technologies has tested 100’s of systems and has found the Turtle Trading Rules to provide the most consistent results over the long term and on various securities. Many systems may claim to produce amazing returns, however they say that most end up failing in the long term.
They claim that their system is completely transparent, so you know exactly what the program is doing, unlike most Expert Advisors made in Metatrader and sold online.
OriginalTurtleTrader.com (DNA Technologies) uses the exact same rules the Original Turtles used, and they have tested their Turtle Auto Trading program on over 10 years of data with consistent returns.
DNA Technologies has tested 100’s of systems and has found the Turtle Trading Rules to provide the most consistent results over the long term and on various securities. Many systems may claim to produce amazing returns, however they say that most end up failing in the long term.
They claim that their system is completely transparent, so you know exactly what the program is doing, unlike most Expert Advisors made in Metatrader and sold online.
Wednesday, January 14, 2009
Diversification: Spreading out your risk among the different currency pairs
Anyone who has spent time studying and investing in the stock market knows the importance of diversification. This is one of the most looked at and talked about terms in portfolio management. Even non business oriented people have heard the term. This article is not going to go into depth going over the reasons for practicing it; rather we will look at its implications in the forex market.
Have you ever seen a system for sale or talked to other trades that claim one currency pair trades better than the others. Or a step further, it is easier to trade the eur, than it is the chf? Well in manual trading and other systems this may be the case. I would caution anyone to use a system that is only suited to one pair. If the system is only able to perform well on one currency pair I question its true validity as a successful system. Shouldn't a system work for all pairs or any instrument that is traded? The more markets that can be traded with a system the more valid it must be. If one person optimizes a system based on 10 years of past data for one currency pair you might be impressed. But what happens when the 11th year all the past data looks totally different from the new market conditions? Different forex and futures markets can trade a certain way for 10 years at a time and immediately change behavior. Any system that worked before, is likely not going to work in the future.
Don't be discouraged. Top traders have used the turtle trader system for over 30+ years trading in 40 different markets. Not just 40 different instruments, but separate markets. For instance the euro, Swiss franc, British pound, and the yen would be one market. Now those are results that can be trusted to be statistically significant. This is just one of many reasons why the turtle trading system is the best system out there for automated computer trading.
R.A.
Have you ever seen a system for sale or talked to other trades that claim one currency pair trades better than the others. Or a step further, it is easier to trade the eur, than it is the chf? Well in manual trading and other systems this may be the case. I would caution anyone to use a system that is only suited to one pair. If the system is only able to perform well on one currency pair I question its true validity as a successful system. Shouldn't a system work for all pairs or any instrument that is traded? The more markets that can be traded with a system the more valid it must be. If one person optimizes a system based on 10 years of past data for one currency pair you might be impressed. But what happens when the 11th year all the past data looks totally different from the new market conditions? Different forex and futures markets can trade a certain way for 10 years at a time and immediately change behavior. Any system that worked before, is likely not going to work in the future.
Don't be discouraged. Top traders have used the turtle trader system for over 30+ years trading in 40 different markets. Not just 40 different instruments, but separate markets. For instance the euro, Swiss franc, British pound, and the yen would be one market. Now those are results that can be trusted to be statistically significant. This is just one of many reasons why the turtle trading system is the best system out there for automated computer trading.
R.A.
Turtle Trader as an Expert Advisor, Autotrade Program
One of the many positive qualities behind the turtle trader EA that is not usually discussed is its low exposure to internet and power loss. There are many expert advisors that will trade actively throughout the day. In another article I wrote about how these expert advisors claim great results but usually do not perform well in live trading. Now even if you do come upon a system that you have tested to perform well in forward tests there still is another factor that must be considered. What will happen when the power goes out? What will happen when my internet goes down? What will happen when my brokers price feed goes down? These are all real possibilities and must be considered. Many expert advisors will have catastrophic results if any of these things happen. The turtle trader system on the other hand will perform just fine in most cases.
The reason that turtle trader is at significantly less risk to these types of outages is due largely to the fact that it is a longer term trading system. That means that if the power goes down for 3 hours, there is a good chance that nothing needed to be done during live trading in the first place. No new orders would likely have to be placed. Further, if positions are already entered a hard stop loss has been hardwired into the brokers system for execution. So if your power or internet goes down and the price moves against your trade, the broker will automatically close it out so that you do not lose money. The turtle system always has a hard stop programmed on the broker side. In the event that a new order needs to be placed but your computer is powered down is unfortunate, but not a disaster. Because this is a longer term system, if you miss entry by even 50 points, it is not going to cost you a huge chunk of profits. As soon as the power comes on, the system will look at what orders should have been placed and will get you into the correct trade.
The best part about the turtle system is that there is very little user maintenance. A quick glance at the stock charts each day and you will be sure everything is running correctly. You should be able to do this in less than 5 minutes once you have some practice. The system is going to methodically place trades at longer term appropriate levels at a small fraction of your account size. You will never have to worry about having live, over leveraged trades with no stop loss.
-R.A.
The reason that turtle trader is at significantly less risk to these types of outages is due largely to the fact that it is a longer term trading system. That means that if the power goes down for 3 hours, there is a good chance that nothing needed to be done during live trading in the first place. No new orders would likely have to be placed. Further, if positions are already entered a hard stop loss has been hardwired into the brokers system for execution. So if your power or internet goes down and the price moves against your trade, the broker will automatically close it out so that you do not lose money. The turtle system always has a hard stop programmed on the broker side. In the event that a new order needs to be placed but your computer is powered down is unfortunate, but not a disaster. Because this is a longer term system, if you miss entry by even 50 points, it is not going to cost you a huge chunk of profits. As soon as the power comes on, the system will look at what orders should have been placed and will get you into the correct trade.
The best part about the turtle system is that there is very little user maintenance. A quick glance at the stock charts each day and you will be sure everything is running correctly. You should be able to do this in less than 5 minutes once you have some practice. The system is going to methodically place trades at longer term appropriate levels at a small fraction of your account size. You will never have to worry about having live, over leveraged trades with no stop loss.
-R.A.
Tuesday, January 13, 2009
Turtle Power: Finding Success with the Turtle System
I have traded stocks and forex for some time. To others it I may seem green to the markets, but in the 7 years I have studied various trading techniques I have never found anything as systematic and successful as the turtle trading system. I was immediately drawn to the forex market for many obvious reasons. The ability to trade with high leverage and a small account was at the top of the list. Yet the free streaming charts, and no commission style trading was very enticing, not to mention the markets being open to trade 24 hours a day. The last statement turned out to not be much of anything as any experienced trader knows. Trading during the quiet hours is just a recipe for disaster. Once I had funded my account with my first $250 I wasted no time to lose $75 in the first week. Next step was to hone my technical analysis skills.
I studied technical analysis and researched every oscillator and moving average I could get my hands on. I kept looking for the one indicator that would make me rich. It took a while and many losses before I realized that was not going to happen. A few years later I grew as a trader and realized all indicators are lagging and that only true price action must be observed. I soon became fascinated with pivot points and Japanese candlesticks. Finally I would use a single chart on my screen without any indicators. I made some profitable trades with nothing but candlesticks on my chart. I was arriving as a trader. However, I was never able to be profitable, because I just did not have the discipline to be consistent and take trades only if they fit my trading plan. That is when I knew I needed to explore the realm of expert advisors.
I first looked at all the commercial ones available. "$5,000 to $125,000 in only 6 months!" I would read the headlines and get excited. I never did end up purchasing any of these to my credit. I read enough forum's and talked to enough traders to know that their claims were ridiculous and were actually created by cheating the backtester using delayed data. None of them work in the forward tests. I was determined that a profitable EA must exist, but it would have to produce more reliable and grounded results. Mark, my college roommate, was always fascinated with autotradeing the forex market. While I had my doubts, he kept thinking about how amazing it would be to not have to start your trading day at midnight and finish up at noon each day. I always wanted to trade, but I did not want it to consume my life.
Having realized that working the graveyard shift in trading was less than ideal, Mark and I set out to create a profitable EA. We were first drawn the Mark Fishers ACD system. We liked how he had significant price levels that must be broken and sustained before entering a trade. I read his book as if it was gospel and Mark set out to create an expert based off of the rules. As it turned out there was just too much human discretion that was needed to trade the system profitably. Mark was able to code all the elements of the system, the issue was that the ACD system was really not a system but more just ideas to trade off of. It was not going to produce results on its own. We needed a system that had set rules that if followed would create wealth.
Back to the drawing board we went. Mark and I liked how ACD was a breakout type system so we continued to explore possibilities in that area. I re-read my first trading book and it explained the theory and simple practice of breakouts. Mark and I both independently worked on ideas for a more complex system based off of breakouts. We had many conversations and developed a system that called for a breakout from a larger timeframe such as weekly candlesticks. Further it would let profits run and minimize risk using strict money management. I searched the web looking for other ideas to improve our plans for the system. I stumbled across the turtle traders website. I had been there once before, but had discounted the worth of a website with the title "The turtle traders." I sure feel silly now, but am fortunate I revisited the site and decided to give it a chance. It turned out to be an inspiring story, but most of all the exact trading rules were written out on paper for a system that had a proven track record of over 20 years! After reading through the 20+ pages of rules I knew this is what Mark and I were looking for.
The turtle system laid out a more advanced money management system than we ever considered, but most importantly based stop loss off of an algorithm of the current price action environment. This was a very important concept that Mark and I immediately knew was a key part to this systems success. Taking market volatility into account allowed the system to be successful in different types of markets during different parts of the years. Basically the system would have the ability to be profitable each year in and out. I will not bog you down with the rest of the rules as they are readily available in another section of this website. What I will say is that Mark and I loved the simplicity of the system but even more the concrete rules for getting into and out of positions. They were all based on statistically significant timeframes. Since we had already independently researched a larger term breakout system we were convinced this was the way to go as it agreed with many of our principle ideas. Further, it was clear that these rules could be completely computer driven. We actually laughed at one point when reading the book about the turtle traders. They installed pool and ping pong tables in their trading office because they had to kill the time sitting around their computers watching the price all day. They were not performing intense fundamental analysis or drawing chart patterns. They simply waited to see the price cross significant levels and then made a call to their broker to place a trade. Now in 2008 with metatrader we can have the computer watch the price and make the trades while we are sleeping. Remember for people living on the west coast trading really starts each day at midnight
It didn't take long for Mark to start creating this system to be run in metatrader. Durring this time we had more conversations to make sure that the integrity of the original system was preserved in the code. Once we had the final product we were very excited. We have only run the program for a few months, but we have more than doubled our accounts in this time. Granted the markets have been very volatile in late 2008, we still are confident this system will work under all market conditions. There is no sure bet in trading, but this is a simple logical system that will produce well better than average terms, with acceptable levels of risk.
R.A.
I studied technical analysis and researched every oscillator and moving average I could get my hands on. I kept looking for the one indicator that would make me rich. It took a while and many losses before I realized that was not going to happen. A few years later I grew as a trader and realized all indicators are lagging and that only true price action must be observed. I soon became fascinated with pivot points and Japanese candlesticks. Finally I would use a single chart on my screen without any indicators. I made some profitable trades with nothing but candlesticks on my chart. I was arriving as a trader. However, I was never able to be profitable, because I just did not have the discipline to be consistent and take trades only if they fit my trading plan. That is when I knew I needed to explore the realm of expert advisors.
I first looked at all the commercial ones available. "$5,000 to $125,000 in only 6 months!" I would read the headlines and get excited. I never did end up purchasing any of these to my credit. I read enough forum's and talked to enough traders to know that their claims were ridiculous and were actually created by cheating the backtester using delayed data. None of them work in the forward tests. I was determined that a profitable EA must exist, but it would have to produce more reliable and grounded results. Mark, my college roommate, was always fascinated with autotradeing the forex market. While I had my doubts, he kept thinking about how amazing it would be to not have to start your trading day at midnight and finish up at noon each day. I always wanted to trade, but I did not want it to consume my life.
Having realized that working the graveyard shift in trading was less than ideal, Mark and I set out to create a profitable EA. We were first drawn the Mark Fishers ACD system. We liked how he had significant price levels that must be broken and sustained before entering a trade. I read his book as if it was gospel and Mark set out to create an expert based off of the rules. As it turned out there was just too much human discretion that was needed to trade the system profitably. Mark was able to code all the elements of the system, the issue was that the ACD system was really not a system but more just ideas to trade off of. It was not going to produce results on its own. We needed a system that had set rules that if followed would create wealth.
Back to the drawing board we went. Mark and I liked how ACD was a breakout type system so we continued to explore possibilities in that area. I re-read my first trading book and it explained the theory and simple practice of breakouts. Mark and I both independently worked on ideas for a more complex system based off of breakouts. We had many conversations and developed a system that called for a breakout from a larger timeframe such as weekly candlesticks. Further it would let profits run and minimize risk using strict money management. I searched the web looking for other ideas to improve our plans for the system. I stumbled across the turtle traders website. I had been there once before, but had discounted the worth of a website with the title "The turtle traders." I sure feel silly now, but am fortunate I revisited the site and decided to give it a chance. It turned out to be an inspiring story, but most of all the exact trading rules were written out on paper for a system that had a proven track record of over 20 years! After reading through the 20+ pages of rules I knew this is what Mark and I were looking for.
The turtle system laid out a more advanced money management system than we ever considered, but most importantly based stop loss off of an algorithm of the current price action environment. This was a very important concept that Mark and I immediately knew was a key part to this systems success. Taking market volatility into account allowed the system to be successful in different types of markets during different parts of the years. Basically the system would have the ability to be profitable each year in and out. I will not bog you down with the rest of the rules as they are readily available in another section of this website. What I will say is that Mark and I loved the simplicity of the system but even more the concrete rules for getting into and out of positions. They were all based on statistically significant timeframes. Since we had already independently researched a larger term breakout system we were convinced this was the way to go as it agreed with many of our principle ideas. Further, it was clear that these rules could be completely computer driven. We actually laughed at one point when reading the book about the turtle traders. They installed pool and ping pong tables in their trading office because they had to kill the time sitting around their computers watching the price all day. They were not performing intense fundamental analysis or drawing chart patterns. They simply waited to see the price cross significant levels and then made a call to their broker to place a trade. Now in 2008 with metatrader we can have the computer watch the price and make the trades while we are sleeping. Remember for people living on the west coast trading really starts each day at midnight
It didn't take long for Mark to start creating this system to be run in metatrader. Durring this time we had more conversations to make sure that the integrity of the original system was preserved in the code. Once we had the final product we were very excited. We have only run the program for a few months, but we have more than doubled our accounts in this time. Granted the markets have been very volatile in late 2008, we still are confident this system will work under all market conditions. There is no sure bet in trading, but this is a simple logical system that will produce well better than average terms, with acceptable levels of risk.
R.A.
Monday, January 12, 2009
Jerry Parker: Most Successful Turtle Trader
How does a trader who earns $35 million spend his money? How about making America better?
For Jerry Parker, the unpretentious super trader from Lynchburg, VA, the most important work occurs around the kitchen table. That’s where Parker’s wife, a certified teacher, home schools the family’s three children.
A religious man, who in his spare time loves politics, Parker donates considerable sums to political campaigns in his home state as well as to missionary Christian charities.
"I was a small town person and Richard Dennis rescued me from leading a normal life," says Parker. A turtle, who trained under Dennis from 1984 through 1988, Parker founded Chesapeake Capital Management in 1988.
Today, he employs five other traders, who monitor more than 85 futures markets, 24-hours a day. Leading a less glamorous life than Wall Street hotshots, Parker still comes to the office everyday.
"Trading for Rich, you got in at 7am and at 2pm you watched the Cubs game. When you become a CTA, you have to raise money, hire people, do research keep track of performance and trade." Running the business is making sure everybody else knows what to do. When he’s on vacation, Parker still checks in to see how the markets are doing in Australia, England and Japan. Though traders follow their computerized instructions, he still calls in several times a day to see how much they’re making and how much they’re losing. "You cannot control yourself," he admits.
Several consultants praise Parker for running a "lean operation." "There’s people who have twice as many employees and manage the same amount of money," admits Parker. Since the technical trend following style follows its computer models [the firm is 90 percent systematic and 10 percent discretionary], "we’re not really interested in people who are experts at the French stock markets or German bond markets." "It doesn’t take a huge monster infrastructure – not Harvard MBAs and people from Goldman Sachs," Parker retorts. This February, Parker plans to visit foreign seminaries in Australia, Pakistan, India and Thailand, that teach preachers around the world. He’s already met Charles Colson, the former Watergate figure who started a mission for prisons. Parker ponders the next step beyond trading. Politics? Perhaps. Short of running for political office, Parker donates to political campaigns. Another billion dollar trader Another is [sic] role model George Soros: his foundations have given away over $300 million to foster capitalism in the former Eastern bloc countries.
For Jerry Parker, the unpretentious super trader from Lynchburg, VA, the most important work occurs around the kitchen table. That’s where Parker’s wife, a certified teacher, home schools the family’s three children.
A religious man, who in his spare time loves politics, Parker donates considerable sums to political campaigns in his home state as well as to missionary Christian charities.
"I was a small town person and Richard Dennis rescued me from leading a normal life," says Parker. A turtle, who trained under Dennis from 1984 through 1988, Parker founded Chesapeake Capital Management in 1988.
Today, he employs five other traders, who monitor more than 85 futures markets, 24-hours a day. Leading a less glamorous life than Wall Street hotshots, Parker still comes to the office everyday.
"Trading for Rich, you got in at 7am and at 2pm you watched the Cubs game. When you become a CTA, you have to raise money, hire people, do research keep track of performance and trade." Running the business is making sure everybody else knows what to do. When he’s on vacation, Parker still checks in to see how the markets are doing in Australia, England and Japan. Though traders follow their computerized instructions, he still calls in several times a day to see how much they’re making and how much they’re losing. "You cannot control yourself," he admits.
Several consultants praise Parker for running a "lean operation." "There’s people who have twice as many employees and manage the same amount of money," admits Parker. Since the technical trend following style follows its computer models [the firm is 90 percent systematic and 10 percent discretionary], "we’re not really interested in people who are experts at the French stock markets or German bond markets." "It doesn’t take a huge monster infrastructure – not Harvard MBAs and people from Goldman Sachs," Parker retorts. This February, Parker plans to visit foreign seminaries in Australia, Pakistan, India and Thailand, that teach preachers around the world. He’s already met Charles Colson, the former Watergate figure who started a mission for prisons. Parker ponders the next step beyond trading. Politics? Perhaps. Short of running for political office, Parker donates to political campaigns. Another billion dollar trader Another is [sic] role model George Soros: his foundations have given away over $300 million to foster capitalism in the former Eastern bloc countries.
Michael Covel on the Turtle Traders Trained by Richard Dennis
Michael Covel talks about the psychological aspect of trading and the need for an entrepreneurial mind set. Also lists several original turtle traders who are still trading successfully today, including Jerry Parker, who Covel says is the most successful turtle trader to date.
Original Turtle Trader: Curtis Faith Video Interview
Short Video Interview with Curtis Faith, an original Turtle Trader & author of "Way of the Turtle"
Saturday, January 10, 2009
Original Turtle Trading Rules: Chapter 8: Further Study
Where do you go from here? There is no substitute for experience.
The humorist Barry Le Platner said: “Good judgment comes from experience, and experience comes from bad judgment.”
If you want to become a trader, you must start to trade. There is no substitute. You must also make mistakes.
Making mistakes is part of trading. If you don’t start trading using actual money—and enough money that it affects you when you win or lose—you won’t learn all the lessons of trading.
Experience: “Experience is thatmarvelous thing that enables you to recognize a mistakewhen you make it again.” - Franklyn P. Jones.
Paper trading is not a substitute for trading with real money. If you aren’t using real money, you won’t learn how hope, fear, and greed affect you personally.
At the same time, it is important to get a thorough understanding of the fundamentals of trading. Armed with this knowledge you will make fewer mistakes, and you will learn much more quickly from the mistakes that you do make.
Here are some suggested areas for further study:
Trading Psychology
Trading psychology is the most important aspect of trading, and understanding yourself and your own personality as it relates to your trading is critical. This journey is much more about making a sincere and open-minded attempt to understand your own personal psychology than it is about finding the magic psychology book with all the answers.
Money Management
Money Management is the most important aspect of a mechanical trading system. Controlling risk in a manner that will allow you to continue trading through the inevitable bad periods, and survive to realize the profit potential of good systems, is absolutely fundamental. Yet, the interplay between entry signals, exits and money management is often non-intuitive. Study and Research into the state-of-the-art in money management will pay enormous dividends.
Trading Research
There is no substitute for statistically valid historical research when developing mechanical trading systems. In practice, this means learning how to program a computer to run simulations of trading system performance.
There is a lot of good information on curve-fitting, over-optimization, trading statistics and testing methodologies on the web and in books, but the information is a bit hard to find amongst the hype and bull. Be skeptical, but keep an open mind, and your research will pay off.
Final Warning
There are a lot of individuals who try to sell themselves and their advice as “expert.” Don’t blindly accept the advice of these self-proclaimed experts. The best advice comes from those who aren’t selling it, and who make their money trading. There are many books and biographies that give insights into the habits of those who have been—or who are—successful traders.
Learning how to become a good trader—or even an excellent trader—is possible, but it requires a lot of hard work and a healthy dose of skepticism. For those of us who have chosen this path, the journey never ends. Those who continue to be successful will never reach their destination, but will learn to find joy in the journey itself.
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
The humorist Barry Le Platner said: “Good judgment comes from experience, and experience comes from bad judgment.”
If you want to become a trader, you must start to trade. There is no substitute. You must also make mistakes.
Making mistakes is part of trading. If you don’t start trading using actual money—and enough money that it affects you when you win or lose—you won’t learn all the lessons of trading.
Experience: “Experience is thatmarvelous thing that enables you to recognize a mistakewhen you make it again.” - Franklyn P. Jones.
Paper trading is not a substitute for trading with real money. If you aren’t using real money, you won’t learn how hope, fear, and greed affect you personally.
At the same time, it is important to get a thorough understanding of the fundamentals of trading. Armed with this knowledge you will make fewer mistakes, and you will learn much more quickly from the mistakes that you do make.
Here are some suggested areas for further study:
Trading Psychology
Trading psychology is the most important aspect of trading, and understanding yourself and your own personality as it relates to your trading is critical. This journey is much more about making a sincere and open-minded attempt to understand your own personal psychology than it is about finding the magic psychology book with all the answers.
Money Management
Money Management is the most important aspect of a mechanical trading system. Controlling risk in a manner that will allow you to continue trading through the inevitable bad periods, and survive to realize the profit potential of good systems, is absolutely fundamental. Yet, the interplay between entry signals, exits and money management is often non-intuitive. Study and Research into the state-of-the-art in money management will pay enormous dividends.
Trading Research
There is no substitute for statistically valid historical research when developing mechanical trading systems. In practice, this means learning how to program a computer to run simulations of trading system performance.
There is a lot of good information on curve-fitting, over-optimization, trading statistics and testing methodologies on the web and in books, but the information is a bit hard to find amongst the hype and bull. Be skeptical, but keep an open mind, and your research will pay off.
Final Warning
There are a lot of individuals who try to sell themselves and their advice as “expert.” Don’t blindly accept the advice of these self-proclaimed experts. The best advice comes from those who aren’t selling it, and who make their money trading. There are many books and biographies that give insights into the habits of those who have been—or who are—successful traders.
Learning how to become a good trader—or even an excellent trader—is possible, but it requires a lot of hard work and a healthy dose of skepticism. For those of us who have chosen this path, the journey never ends. Those who continue to be successful will never reach their destination, but will learn to find joy in the journey itself.
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
Original Turtle Trading Rules: Chapter 7: Tactics
Miscellaneous guidelines to cover the r est of trading the Turtle System Rules.
The famous architect Mies van der Rohe, when speaking about restraint in design, once said: “God is in the details.” This is also true of trading systems.
There are some important details which remain that can make a significant difference in the profitability of your trading when using the Turtle Trading Rules.
Entering Orders
As has been mentioned before, Richard Dennis and William Eckhardt advised the Turtles not to use stops when placing orders. We were advised to watch the market and enter orders when the price hit our stop price.
We were also told that, in general, it was better to place limit orders instead of market orders. This is because limit orders offer a chance for better fills and less slippage than do market orders.
Any market has at all times a bid and an ask. The bid is the price that buyers are willing to buy at, and the ask is the price that sellers are willing to sell at. If at any time the bid price becomes higher than the ask price, trading takes place. A market order will always fill at the bid or ask when there is sufficient volume, and sometimes at a worse price for larger orders.
Typically, there is a certain amount of relatively random price movement that occurs, which is sometimes known as the bounce. The idea behind using limit orders is to place your order at the lower end of the bounce, instead of simply placing a market order. A limit order will not move the market if it is a small order, and it will almost always move it less if it is a larger order.
It takes some skill to be able to determine the best price for a limit order, but with practice, you should be able to get better fills using limit orders placed near the market than with market orders.
Fast Markets
At times, the market moves very quickly through the order prices, and if you place a limit order it simply won’t get filled. During fast market conditions, a market can move thousands of dollars per contract in just a few minutes.
During these times, the Turtles were advised not to panic, and to wait for the market to trade and stabilize before placing their orders.
Most beginning traders find this hard to do. They panic and place market orders. Invariably they do this at the worst possible time, and frequently end up trading on the high or low of the day, at the worst possible price.
In a fast market, liquidity temporarily dries up. In the case of a rising fast market, sellers stop selling and hold out for a higher price, and they will not re-commence selling until after the price stops moving up. In this scenario, the asks rise considerably, and the spread between bid and ask widens.
Buyers are now forced to pay much higher prices as sellers continue raising their asks, and the price eventually moves so far and so fast that new sellers come into the market, causing the price to stabilize, and often to quickly reverse and collapse partway back.
Market orders placed into a fast market usually end up getting filled at the highest price of the run-up, right at the point where the market begins to stabilize as new sellers come in.
As Turtles, we waited until some indication of at least a temporary price reversal before placing our orders, and this often resulted in much better fills than would have been achieved with a market order. If the market stabilized at a point which was past our stop price, then we would get out of the market, but we would do so without panicking.
Simultaneous Entry Signals
Many days as traders there was little market movement, and little for us to do besides monitor existing positions. We might go for days without placing a single order. Other days would be moderately busy, with signals occurring intermittently over the stretch of a few hours. In that case, we would simply take the trades as they came, until they reached the position limits for those markets.
Then there were days when it seemed like everything was happening at once, and we would go from no positions, to loaded, in a day or two. Often, this frantic pace was intensified by multiple signals in correlated markets.
This was especially true when the markets gapped open through the entry signals. You might have a gap opening entry signal in Crude Oil, Heating Oil and Unleaded Gas all on the same day. With futures contracts, it was also extremely common for many different months of the same market to signal at the same time.
Buy Strength – Sell Weakness
If the signals came all at once, we always bought the strongest markets and sold short the weakest markets in a group.
We would also only enter one unit in a single market at the same time. For instance, instead of buying February, March and April Heating Oil at the same time, we would pick the one contract month that was the strongest, and that had sufficient volume and liquidity.
This is very important! Within a correlated group, the best long positions are the strongest markets (which almost always outperform the weaker markets in the same group). Conversely, the biggest winning trades to the short side come from the weakest markets within a correlated group.
As Turtles, we used various measures to determine strength and weakness. The simplest and most common way was to simply look at the charts and figure out which one “looked” stronger (or weaker) by visual examination.
Some would determine how many N the price had advanced since the breakout, and buy the market that had moved the most (in terms of N).
Others would subtract the price 3 months ago from the current price and then divide by the current N to normalize across markets. The strongest markets had the highest values; the weakest markets the lowest.
Any of these approaches work well. The important thing is to have long positions in the strongest markets and short positions in the weakest markets.
Rolling Over Expiring Contracts
When futures contracts expire, there are two major factors that need to be considered before rolling over into a new contract.
First, there are many instances when the near months trend well, but the more distant contracts fail to display the same level of price movement. So don’t roll into a new contract unless its price action would have resulted in an existing position.
Second, contracts should be rolled before the volume and open interest in the expiring contract decline too much. How much is too much depends on the unit size. As a general rule, the Turtles rolled existing positions into the new contract month a few weeks before expiration, unless the (currently held) near month was performing significantly better than farther out contract months.
Finally
That concludes the Complete Turtle Trading System rules. As you are probably thinking, they are not very complicated.
But knowing these rules is not enough to make you rich. You have to be able to follow them.
Remember what Richard Dennis said: “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 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.” – From Market Wizards, by Jack D. Schwager.
Perhaps the best evidence that this is true is the performance of the Turtles themselves; many of them did not make money. This was not because the rules didn’t work; it was because they could not and did not follow the rules. By virtue of this same fact, few who read this document will be successful trading the Turtle Trading Rules. Again; this is not because the rules don’t work. It is because the reader simply won’t have the confidence to follow them.
The Turtle rules are very difficult to follow because they depend on capturing relatively infrequent large trends. As a result, many months can pass between winning periods; at times even a year or two. During these periods it is easy to come up with reasons to doubt the system, and to stop following the rules:
What if the rules don’t work anymore? What if the markets have changed?
What if there is something important missing from the rules?
How can I be really sure that this works?
The Shep’s Trading Rule - “You can break the rules and get awaywith it. Eventually, the rules break you for not respecting them.” – From Zen in the Markets, by Edward A.Toppel
One member of the first Turtles class, who was fired from the program before the end of the first year, suspected early on that information had been intentionally withheld from the group, and eventually became convinced that there were hidden secrets which Rich would not reveal. This particular trader could not face up to the simple fact that his poor performance was due to his own doubts and insecurities, which resulted in his inability to follow the rules.
Another problem is the tendency to want to change the rules. Many of the Turtles, in an effort to reduce the risk of trading the system, changed the rules in subtle ways which sometimes had the opposite of the desired effect.
An example: Failing to enter positions as quickly as the rules specify (1 unit every ½ N). While this may seem like a more conservative approach, the reality could be that, for the type of entry system the Turtles used, adding to positions slowly might increase the chance that a retracement would hit the exit stops—resulting in losses—whereas a faster approach might allow the position to weather the retracement without the stops being hit. This subtle change could have a major impact on the profitability of the system during certain market conditions.
In order to build the level of confidence you will need to follow a trading system’s rules, whether it is the Turtle System, something similar, or a completely different system, it is imperative that you personally conduct research using historical trading data. It is not enough to hear from others that a system works; it is not enough to read the summary results from research conducted by others. You must do it yourself.
Get your hands dirty and get directly involved in the research. Dig into the trades, look at the daily equity logs, get very familiar with the way the system trades, and with the extent and frequency of the losses.
It is much easier to weather an 8 month losing period if you know that there have been many periods of equivalent length in the last 20 years. It will be much easier to add to positions quickly if you know that adding quickly is a key part of the profitability of the system.
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
The famous architect Mies van der Rohe, when speaking about restraint in design, once said: “God is in the details.” This is also true of trading systems.
There are some important details which remain that can make a significant difference in the profitability of your trading when using the Turtle Trading Rules.
Entering Orders
As has been mentioned before, Richard Dennis and William Eckhardt advised the Turtles not to use stops when placing orders. We were advised to watch the market and enter orders when the price hit our stop price.
We were also told that, in general, it was better to place limit orders instead of market orders. This is because limit orders offer a chance for better fills and less slippage than do market orders.
Any market has at all times a bid and an ask. The bid is the price that buyers are willing to buy at, and the ask is the price that sellers are willing to sell at. If at any time the bid price becomes higher than the ask price, trading takes place. A market order will always fill at the bid or ask when there is sufficient volume, and sometimes at a worse price for larger orders.
Typically, there is a certain amount of relatively random price movement that occurs, which is sometimes known as the bounce. The idea behind using limit orders is to place your order at the lower end of the bounce, instead of simply placing a market order. A limit order will not move the market if it is a small order, and it will almost always move it less if it is a larger order.
It takes some skill to be able to determine the best price for a limit order, but with practice, you should be able to get better fills using limit orders placed near the market than with market orders.
Fast Markets
At times, the market moves very quickly through the order prices, and if you place a limit order it simply won’t get filled. During fast market conditions, a market can move thousands of dollars per contract in just a few minutes.
During these times, the Turtles were advised not to panic, and to wait for the market to trade and stabilize before placing their orders.
Most beginning traders find this hard to do. They panic and place market orders. Invariably they do this at the worst possible time, and frequently end up trading on the high or low of the day, at the worst possible price.
In a fast market, liquidity temporarily dries up. In the case of a rising fast market, sellers stop selling and hold out for a higher price, and they will not re-commence selling until after the price stops moving up. In this scenario, the asks rise considerably, and the spread between bid and ask widens.
Buyers are now forced to pay much higher prices as sellers continue raising their asks, and the price eventually moves so far and so fast that new sellers come into the market, causing the price to stabilize, and often to quickly reverse and collapse partway back.
Market orders placed into a fast market usually end up getting filled at the highest price of the run-up, right at the point where the market begins to stabilize as new sellers come in.
As Turtles, we waited until some indication of at least a temporary price reversal before placing our orders, and this often resulted in much better fills than would have been achieved with a market order. If the market stabilized at a point which was past our stop price, then we would get out of the market, but we would do so without panicking.
Simultaneous Entry Signals
Many days as traders there was little market movement, and little for us to do besides monitor existing positions. We might go for days without placing a single order. Other days would be moderately busy, with signals occurring intermittently over the stretch of a few hours. In that case, we would simply take the trades as they came, until they reached the position limits for those markets.
Then there were days when it seemed like everything was happening at once, and we would go from no positions, to loaded, in a day or two. Often, this frantic pace was intensified by multiple signals in correlated markets.
This was especially true when the markets gapped open through the entry signals. You might have a gap opening entry signal in Crude Oil, Heating Oil and Unleaded Gas all on the same day. With futures contracts, it was also extremely common for many different months of the same market to signal at the same time.
Buy Strength – Sell Weakness
If the signals came all at once, we always bought the strongest markets and sold short the weakest markets in a group.
We would also only enter one unit in a single market at the same time. For instance, instead of buying February, March and April Heating Oil at the same time, we would pick the one contract month that was the strongest, and that had sufficient volume and liquidity.
This is very important! Within a correlated group, the best long positions are the strongest markets (which almost always outperform the weaker markets in the same group). Conversely, the biggest winning trades to the short side come from the weakest markets within a correlated group.
As Turtles, we used various measures to determine strength and weakness. The simplest and most common way was to simply look at the charts and figure out which one “looked” stronger (or weaker) by visual examination.
Some would determine how many N the price had advanced since the breakout, and buy the market that had moved the most (in terms of N).
Others would subtract the price 3 months ago from the current price and then divide by the current N to normalize across markets. The strongest markets had the highest values; the weakest markets the lowest.
Any of these approaches work well. The important thing is to have long positions in the strongest markets and short positions in the weakest markets.
Rolling Over Expiring Contracts
When futures contracts expire, there are two major factors that need to be considered before rolling over into a new contract.
First, there are many instances when the near months trend well, but the more distant contracts fail to display the same level of price movement. So don’t roll into a new contract unless its price action would have resulted in an existing position.
Second, contracts should be rolled before the volume and open interest in the expiring contract decline too much. How much is too much depends on the unit size. As a general rule, the Turtles rolled existing positions into the new contract month a few weeks before expiration, unless the (currently held) near month was performing significantly better than farther out contract months.
Finally
That concludes the Complete Turtle Trading System rules. As you are probably thinking, they are not very complicated.
But knowing these rules is not enough to make you rich. You have to be able to follow them.
Remember what Richard Dennis said: “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 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.” – From Market Wizards, by Jack D. Schwager.
Perhaps the best evidence that this is true is the performance of the Turtles themselves; many of them did not make money. This was not because the rules didn’t work; it was because they could not and did not follow the rules. By virtue of this same fact, few who read this document will be successful trading the Turtle Trading Rules. Again; this is not because the rules don’t work. It is because the reader simply won’t have the confidence to follow them.
The Turtle rules are very difficult to follow because they depend on capturing relatively infrequent large trends. As a result, many months can pass between winning periods; at times even a year or two. During these periods it is easy to come up with reasons to doubt the system, and to stop following the rules:
What if the rules don’t work anymore? What if the markets have changed?
What if there is something important missing from the rules?
How can I be really sure that this works?
The Shep’s Trading Rule - “You can break the rules and get awaywith it. Eventually, the rules break you for not respecting them.” – From Zen in the Markets, by Edward A.Toppel
One member of the first Turtles class, who was fired from the program before the end of the first year, suspected early on that information had been intentionally withheld from the group, and eventually became convinced that there were hidden secrets which Rich would not reveal. This particular trader could not face up to the simple fact that his poor performance was due to his own doubts and insecurities, which resulted in his inability to follow the rules.
Another problem is the tendency to want to change the rules. Many of the Turtles, in an effort to reduce the risk of trading the system, changed the rules in subtle ways which sometimes had the opposite of the desired effect.
An example: Failing to enter positions as quickly as the rules specify (1 unit every ½ N). While this may seem like a more conservative approach, the reality could be that, for the type of entry system the Turtles used, adding to positions slowly might increase the chance that a retracement would hit the exit stops—resulting in losses—whereas a faster approach might allow the position to weather the retracement without the stops being hit. This subtle change could have a major impact on the profitability of the system during certain market conditions.
In order to build the level of confidence you will need to follow a trading system’s rules, whether it is the Turtle System, something similar, or a completely different system, it is imperative that you personally conduct research using historical trading data. It is not enough to hear from others that a system works; it is not enough to read the summary results from research conducted by others. You must do it yourself.
Get your hands dirty and get directly involved in the research. Dig into the trades, look at the daily equity logs, get very familiar with the way the system trades, and with the extent and frequency of the losses.
It is much easier to weather an 8 month losing period if you know that there have been many periods of equivalent length in the last 20 years. It will be much easier to add to positions quickly if you know that adding quickly is a key part of the profitability of the system.
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
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
Original Turtle Trading Rules: Chapter 5: Stops
The Turtles used N-based stops to avoid large losses in equity.
There is an expression that, “There are old traders; and there are bold traders; but there are no old bold traders.” Traders that don’t use stops go broke.
The Turtles always used stops.
For most people, it is far easier to cling to the hope that a losing trade will turn around than it is to simply get out of a losing position and admit that the trade did not work out.
Let us make one thing very clear. Getting out of a losing position is absolutely critical. Traders who do not cut their losses will not be successful in the long term. Almost all of the examples of trading that got out of control and jeopardized the health of the financial institution itself, such as Barings, Long-term Capital Management, and others, involved trades that were allowed to develop into large losses because they were not cut short when they were small losses.
The most important thing about cutting your losses is to have predefined the point where you will get out, before you enter a position. If the market moves to your price, you must get out, no exceptions, every single time. Wavering from this method will eventually result in disaster.
Turtle Stops
Having stops didn’t mean that the Turtles always had actual stop orders placed with the broker.
Since the Turtles carried such large positions, we did not want to reveal our positions or our trading strategies by placing stop orders with brokers. Instead, we were encouraged to have a particular price, which when hit, would cause us to exit our positions using either limit orders, or market orders.
These stops were non-negotiable exits. If a particular commodity traded at the stop price, then the position was exited; each time, every time, without fail.
Stop Placement
The Turtles placed their stops based on position risk. No trade could incur more than 2% risk.
Since 1 N of price movement represented 1% of Account Equity, the maximum stop that would allow 2% risk would be 2 N of price movement. Turtle stops were set at 2 N below the entry for long positions, and 2 N above the entry for short positions.
In order to keep total position risk at a minimum, if additional units were added, the stops for earlier units were raised by ½ N. This generally meant that all the stops for the entire position would be placed at 2 N from the most recently added unit. However, in cases where later units were placed at larger spacing either because of fast markets causing skid, or because of opening gaps, there would be differences in the stops.
For example:
Crude Oil
N = 1.20
55 day breakout = 28.30
Entry Price Stop
First Unit 28.30 25.90
Entry Price Stop
First Unit 28.30 26.50
Second Unit 28.90 26.50
Entry Price Stop
First Unit 28.30 27.10
Second Unit 28.90 27.10
Third Unit 29.50 27.10
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 27.70
Third Unit 29.50 27.70
Fourth Unit 30.10 27.70
Case where fourth unit was added at a higher price because the market opened gapping up to 30.80:
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 27.70
Third Unit 29.50 27.70
Fourth Unit 30.80 28.40
Alternate Stop Strategy – The Whipsaw
The Turtles were told of an alternate stop strategy that resulted in better profitability, but that was harder to execute because it incurred many more losses, which resulted in a lower win/loss ratio. This strategy was called the Whipsaw.
Instead of taking a 2% risk on each trade, the stops were placed at ½ N for ½% account risk. If a given Unit was stopped out, the Unit would be re-entered if the market reached the original entry price. A few Turtles traded this method with good success.
The Whipsaw also had the added benefit of not requiring the movement of stops for earlier Units as new Units were added, since the total risk would never exceed 2% at the maximum four Units.
For example, using Whipsaw stops, the Crude Oil entry stops would be:
Crude Oil
N = 1.20
55 day breakout = 28.30
Entry Price Stop
First Unit 28.30 27.70
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Third Unit 29.50 28.90
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Third Unit 29.50 28.90
Fourth Unit 30.10 29.50
Benefits of the Turtle System Stops
Since the Turtle’s stops were based on N, they adjusted to the volatility of the markets. More volatile markets would have wider stops, but they would also have fewer contracts per Unit. This equalized the risk across all entries and resulted in better diversification and a more robust risk management.
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
There is an expression that, “There are old traders; and there are bold traders; but there are no old bold traders.” Traders that don’t use stops go broke.
The Turtles always used stops.
For most people, it is far easier to cling to the hope that a losing trade will turn around than it is to simply get out of a losing position and admit that the trade did not work out.
Let us make one thing very clear. Getting out of a losing position is absolutely critical. Traders who do not cut their losses will not be successful in the long term. Almost all of the examples of trading that got out of control and jeopardized the health of the financial institution itself, such as Barings, Long-term Capital Management, and others, involved trades that were allowed to develop into large losses because they were not cut short when they were small losses.
The most important thing about cutting your losses is to have predefined the point where you will get out, before you enter a position. If the market moves to your price, you must get out, no exceptions, every single time. Wavering from this method will eventually result in disaster.
Turtle Stops
Having stops didn’t mean that the Turtles always had actual stop orders placed with the broker.
Since the Turtles carried such large positions, we did not want to reveal our positions or our trading strategies by placing stop orders with brokers. Instead, we were encouraged to have a particular price, which when hit, would cause us to exit our positions using either limit orders, or market orders.
These stops were non-negotiable exits. If a particular commodity traded at the stop price, then the position was exited; each time, every time, without fail.
Stop Placement
The Turtles placed their stops based on position risk. No trade could incur more than 2% risk.
Since 1 N of price movement represented 1% of Account Equity, the maximum stop that would allow 2% risk would be 2 N of price movement. Turtle stops were set at 2 N below the entry for long positions, and 2 N above the entry for short positions.
In order to keep total position risk at a minimum, if additional units were added, the stops for earlier units were raised by ½ N. This generally meant that all the stops for the entire position would be placed at 2 N from the most recently added unit. However, in cases where later units were placed at larger spacing either because of fast markets causing skid, or because of opening gaps, there would be differences in the stops.
For example:
Crude Oil
N = 1.20
55 day breakout = 28.30
Entry Price Stop
First Unit 28.30 25.90
Entry Price Stop
First Unit 28.30 26.50
Second Unit 28.90 26.50
Entry Price Stop
First Unit 28.30 27.10
Second Unit 28.90 27.10
Third Unit 29.50 27.10
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 27.70
Third Unit 29.50 27.70
Fourth Unit 30.10 27.70
Case where fourth unit was added at a higher price because the market opened gapping up to 30.80:
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 27.70
Third Unit 29.50 27.70
Fourth Unit 30.80 28.40
Alternate Stop Strategy – The Whipsaw
The Turtles were told of an alternate stop strategy that resulted in better profitability, but that was harder to execute because it incurred many more losses, which resulted in a lower win/loss ratio. This strategy was called the Whipsaw.
Instead of taking a 2% risk on each trade, the stops were placed at ½ N for ½% account risk. If a given Unit was stopped out, the Unit would be re-entered if the market reached the original entry price. A few Turtles traded this method with good success.
The Whipsaw also had the added benefit of not requiring the movement of stops for earlier Units as new Units were added, since the total risk would never exceed 2% at the maximum four Units.
For example, using Whipsaw stops, the Crude Oil entry stops would be:
Crude Oil
N = 1.20
55 day breakout = 28.30
Entry Price Stop
First Unit 28.30 27.70
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Third Unit 29.50 28.90
Entry Price Stop
First Unit 28.30 27.70
Second Unit 28.90 28.30
Third Unit 29.50 28.90
Fourth Unit 30.10 29.50
Benefits of the Turtle System Stops
Since the Turtle’s stops were based on N, they adjusted to the volatility of the markets. More volatile markets would have wider stops, but they would also have fewer contracts per Unit. This equalized the risk across all entries and resulted in better diversification and a more robust risk management.
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
Original Turtle Trading Rules: Chapter 4: Entries
The Turtles used two related system entries, each based on Donchian’s channel breakout system.
The typical trader thinks mostly in terms of the entry signals when thinking about a particular trading system. They believe that the entry is the most important aspect of any trading system.
They might be very surprised to find that the Turtles used a very simple entry system based on the Channel Breakout systems taught by Richard Donchian.
The Turtles were given rules for two different but related breakout systems we called System 1 and System 2. We were given full discretion to allocate as much of our equity to either system as we wanted. Some of us chose to trade all our equity using System 2, some chose to use a 50% System 1, 50% System 2 split, while others chose different mixes.
System 1 – A shorter-term system based on a 20-day breakout
System 2 – A simpler long-term system based on a 55-day breakout.
Breakouts
A breakout is defined as the price exceeding the high or low of a particular number of days. Thus a 20-day breakout would be defined as exceeding the high or low of the preceding 20 days.
Turtles always traded at the breakout when it was exceeded during the day, and did not wait until the daily close or the open of the following day. In the case of opening gaps, the Turtles would enter positions on the open if a market opened through the price of the breakout.
System 1 Entry - Turtles entered positions when the price exceeded by a single tick the high or low of the preceding 20 days. If the price exceeded the 20-day high, then the Turtles would buy one Unit to initiate a long position in the corresponding commodity. If the price dropped one tick below the low of the last 20-days, the Turtles would sell one Unit to initiate a short position.
System 1 breakout entry signals would be ignored if the last breakout would have resulted in a winning trade. NOTE: For the purposes of this test, the last breakout was considered the last breakout in the particular commodity irrespective of whether or not that particular breakout was actually taken, or was skipped because of this rule. This breakout would be considered a losing breakout if the price subsequent to the date of the breakout moved 2N against the position before a profitable 10-day exit occurred.
The direction of the last breakout was irrelevant to this rule. Thus, a losing long breakout or a losing short breakout would enable the subsequent new breakout to be taken as a valid entry, regardless of its direction (long or short).
However, in the event that a System 1 entry breakout was skipped because the previous trade had been a winner, an entry would be made at the 55-day breakout to avoid missing major moves. This 55-day breakout was considered the Failsafe Breakout point.
At any given point, if you were out of the market, there would always be some price which would trigger a short entry and another different and higher price which would trigger a long entry. If the last breakout was a loser, then the entry signal would be closer to the current price (i.e. the 20 day breakout), than if it had been a winner, in which case the entry signal would likely be farther away, at the 55 day breakout.
System 2 Entry - Entered when the price exceeded by a single tick the high or low of the preceding 55 days. If the price exceeded the 55 day high, then the Turtles would buy one Unit to initiate a long position in the corresponding commodity. If the price dropped one tick below the low of the last 55 days, the Turtles would sell one Unit to initiate a short position.
All breakouts for System 2 would be taken whether the previous breakout had been a winner or not.
Adding Units
Turtles entered single Unit long positions at the breakouts and added to those positions at ½ N intervals following their initial entry. This ½ N interval was based on the actual fill price of the previous order. So if an initial breakout order slipped by ½ N, then the new order would be 1 full N past the breakout to account for the ½ N slippage, plus the normal ½ N unit add interval.
This would continue right up to the maximum permitted number of units. If the market moved quickly enough it was possible to add the maximum four Units in a single day.
Example:
Gold
N = 2.50
55 day breakout = 310
First Unit added 310.00
Second Unit 310.00 + ½ 2.50 or 311.25
Third Unit 311.25 + ½ 2.50 or 312.50
Fourth Unit 312.50 + ½ 2.50 or 313.75
Crude Oil
N = 1.20
55 day breakout = 28.30
First Unit added 28.30
Second Unit 28.30 + ½ 1.20 or 28.90
Third Unit 28.90 + ½ 1.20 or 29.50
Fourth Unit 29.50 + ½ 1.20 or 30.10
Consistency
The Turtles were told to be very consistent in taking entry signals, because most of the profits in a given year might come from only two or three large winning trades. If a signal was skipped or missed, this could greatly affect the returns for the year.
The Turtles with the best trading records consistently applied the entry rules. The Turtles with the worst records, and all those who were dropped from the program, failed to consistently enter positions when the rules indicated.
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
The typical trader thinks mostly in terms of the entry signals when thinking about a particular trading system. They believe that the entry is the most important aspect of any trading system.
They might be very surprised to find that the Turtles used a very simple entry system based on the Channel Breakout systems taught by Richard Donchian.
The Turtles were given rules for two different but related breakout systems we called System 1 and System 2. We were given full discretion to allocate as much of our equity to either system as we wanted. Some of us chose to trade all our equity using System 2, some chose to use a 50% System 1, 50% System 2 split, while others chose different mixes.
System 1 – A shorter-term system based on a 20-day breakout
System 2 – A simpler long-term system based on a 55-day breakout.
Breakouts
A breakout is defined as the price exceeding the high or low of a particular number of days. Thus a 20-day breakout would be defined as exceeding the high or low of the preceding 20 days.
Turtles always traded at the breakout when it was exceeded during the day, and did not wait until the daily close or the open of the following day. In the case of opening gaps, the Turtles would enter positions on the open if a market opened through the price of the breakout.
System 1 Entry - Turtles entered positions when the price exceeded by a single tick the high or low of the preceding 20 days. If the price exceeded the 20-day high, then the Turtles would buy one Unit to initiate a long position in the corresponding commodity. If the price dropped one tick below the low of the last 20-days, the Turtles would sell one Unit to initiate a short position.
System 1 breakout entry signals would be ignored if the last breakout would have resulted in a winning trade. NOTE: For the purposes of this test, the last breakout was considered the last breakout in the particular commodity irrespective of whether or not that particular breakout was actually taken, or was skipped because of this rule. This breakout would be considered a losing breakout if the price subsequent to the date of the breakout moved 2N against the position before a profitable 10-day exit occurred.
The direction of the last breakout was irrelevant to this rule. Thus, a losing long breakout or a losing short breakout would enable the subsequent new breakout to be taken as a valid entry, regardless of its direction (long or short).
However, in the event that a System 1 entry breakout was skipped because the previous trade had been a winner, an entry would be made at the 55-day breakout to avoid missing major moves. This 55-day breakout was considered the Failsafe Breakout point.
At any given point, if you were out of the market, there would always be some price which would trigger a short entry and another different and higher price which would trigger a long entry. If the last breakout was a loser, then the entry signal would be closer to the current price (i.e. the 20 day breakout), than if it had been a winner, in which case the entry signal would likely be farther away, at the 55 day breakout.
System 2 Entry - Entered when the price exceeded by a single tick the high or low of the preceding 55 days. If the price exceeded the 55 day high, then the Turtles would buy one Unit to initiate a long position in the corresponding commodity. If the price dropped one tick below the low of the last 55 days, the Turtles would sell one Unit to initiate a short position.
All breakouts for System 2 would be taken whether the previous breakout had been a winner or not.
Adding Units
Turtles entered single Unit long positions at the breakouts and added to those positions at ½ N intervals following their initial entry. This ½ N interval was based on the actual fill price of the previous order. So if an initial breakout order slipped by ½ N, then the new order would be 1 full N past the breakout to account for the ½ N slippage, plus the normal ½ N unit add interval.
This would continue right up to the maximum permitted number of units. If the market moved quickly enough it was possible to add the maximum four Units in a single day.
Example:
Gold
N = 2.50
55 day breakout = 310
First Unit added 310.00
Second Unit 310.00 + ½ 2.50 or 311.25
Third Unit 311.25 + ½ 2.50 or 312.50
Fourth Unit 312.50 + ½ 2.50 or 313.75
Crude Oil
N = 1.20
55 day breakout = 28.30
First Unit added 28.30
Second Unit 28.30 + ½ 1.20 or 28.90
Third Unit 28.90 + ½ 1.20 or 29.50
Fourth Unit 29.50 + ½ 1.20 or 30.10
Consistency
The Turtles were told to be very consistent in taking entry signals, because most of the profits in a given year might come from only two or three large winning trades. If a signal was skipped or missed, this could greatly affect the returns for the year.
The Turtles with the best trading records consistently applied the entry rules. The Turtles with the worst records, and all those who were dropped from the program, failed to consistently enter positions when the rules indicated.
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
Original Turtle Trading Rules: Chapter 3: Position Sizing
The Turtles used a volatility-based constant percentage risk position sizing algorithm.
Position sizing is one of the most important but least understood components of any trading system.
The Turtles used a position sizing algorithm that was very advanced for its day, because it normalized the dollar volatility of a position by adjusting the position size based on the dollar volatility of the market. This meant that a given position would tend to move up or down in a given day about the same amount in dollar terms (when compared to positions in other markets), irrespective of the underlying volatility of the particular market.
This is true because positions in markets that moved up and down a large amount per contract would have an offsetting smaller number of contracts than positions in markets that had lower volatility.
This volatility normalization is very important because it means that different trades in different markets tend to have the same chance for a particular dollar loss or a particular dollar gain. This increased the effectiveness of the diversification of trading across many markets.
Even if the volatility of a given market was lower, any significant trend would result in a sizeable win because the Turtles would have held more contracts of that lower volatility commodity.
Volatility – The Meaning of N
The Turtles used a concept that Richard Dennis and Bill Eckhardt called N to represent the underlying volatility of a particular market.
N is simply the 20-day exponential moving average of the True Range, which is now more commonly known as the ATR. Conceptually, N represents the average range in price movement that a particular market makes in a single day, accounting for opening gaps. N was measured in the same points as the underlying contract.
To compute the daily true range:
True Range = Maximum(H-L,H-PDC,PDC-L)
where:
H – Current High
L – Current Low
PDC – Previous Day’s Close
To compute N use the following formula:
where:
PDN – Previous Day’s N
TR – Current Day’s True Range
Since this formula requires a previous day’s N value, you must start with a 20-day simple average of the True Range for the initial calculation.
Dollar Volatility Adjustment
The first step in determining the position size was to determine the dollar volatility represented by the underlying market’s price volatility (defined by its N).
This sounds more complicated than it is. It is determined using the simple formula:
Dollar Volatility = N × Dollars per Point
Volatility Adjusted Position Units
The Turtles built positions in pieces which we called Units. Units were sized so that 1 N represented 1% of the account equity.
Thus, a unit for a given market or commodity can be calculated using the following formula:
Unit = 1% of Account / Market Dollar Volatility
or
Unit = 1% of Account / N × Dollars per Point
Heating Oil HO03H:
Consider the following prices, True Range, and N values for March 2003 Heating Oil:
Date High Low Close True Range N
11/1/2002 0.7220 0.7124 0.7124 0.0096 0.0134
11/4/2002 0.7170 0.7073 0.7073 0.0097 0.0132
11/5/2002 0.7099 0.6923 0.6923 0.0176 0.0134
11/6/2002 0.6930 0.6800 0.6838 0.0130 0.0134
11/7/2002 0.6960 0.6736 0.6736 0.0224 0.0139
11/8/2002 0.6820 0.6706 0.6706 0.0114 0.0137
11/11/2002 0.6820 0.6710 0.6710 0.0114 0.0136
11/12/2002 0.6795 0.6720 0.6744 0.0085 0.0134
11/13/2002 0.6760 0.6550 0.6616 0.0210 0.0138
11/14/2002 0.6650 0.6585 0.6627 0.0065 0.0134
11/15/2002 0.6701 0.6620 0.6701 0.0081 0.0131
11/18/2002 0.6965 0.6750 0.6965 0.0264 0.0138
11/19/2002 0.7065 0.6944 0.6944 0.0121 0.0137
11/20/2002 0.7115 0.6944 0.7087 0.0171 0.0139
11/21/2002 0.7168 0.7100 0.7124 0.0081 0.0136
11/22/2002 0.7265 0.7120 0.7265 0.0145 0.0136
11/25/2002 0.7265 0.7098 0.7098 0.0167 0.0138
11/26/2002 0.7184 0.7110 0.7184 0.0086 0.0135
11/27/2002 0.7280 0.7200 0.7228 0.0096 0.0133
12/2/2002 0.7375 0.7227 0.7359 0.0148 0.0134
12/3/2002 0.7447 0.7310 0.7389 0.0137 0.0134
12/4/2002 0.7420 0.7140 0.7162 0.0280 0.0141
The unit size for the 6th of December, 2002 (using the N value of 0.0141 from the 4th of December), is as follows:
Heating Oil
N = 0.0141
Account Size = $1,000,000
Dollars per Point = 42,000 (42,000 gallon contracts with price quoted in dollars)
Unit Size = (0.01 × $1,000,000) / (0.0141 × 42,000) = 16.88
Since it isn’t possible to trade partial contracts, this would be truncated to an even 16 contracts.
You might ask: “How often is it necessary to compute the values for N and the Unit Size?” The Turtles were provided with a Unit size sheet on Monday of each week that listed the N, and the Unit size in contracts for each of the futures that we traded.
The Importance of Position Sizing
Diversification is an attempt to spread risk across many instruments and to increase the opportunity for profit by increasing the opportunities for catching successful trades. To properly diversify requires making similar if not identical bets on many different instruments.
The Turtle System used market volatility to measure the risk involved in each market. We then used this risk measurement to build positions in increments that represented a constant amount of risk (or volatility). This enhanced the benefits of diversification, and increased the likelihood that winning trades would offset losing trades.
Note that this diversification is much harder to achieve when using insufficient trading capital. Consider the above example if a $100,000 account had been used. The unit size would have been a single contract, since 1.688 truncates to 1. For smaller accounts, the granularity of adjustment is too large, and this greatly reduces the effectiveness of diversification.
Units as a measure of Risk
Since the Turtles used the Unit as the base measure for position size, and since those units were volatility risk adjusted, the Unit was a measure of both the risk of a position, and of the entire portfolio of positions.
The Turtles were given risk management rules that limited the number of Units that we could maintain at any given time, on four different levels. In essence, these rules controlled the total risk that a trader could carry, and these limits minimized losses during prolonged losing periods, as well as during extraordinary price movements.
An example of an extraordinary price movement was the day after the October, 1987 stock market crash. The U.S. Federal Reserve lowered interest rates by several percentage points overnight to boost the confidence of the stock market and the country. The Turtles were loaded long in interest rate futures: Eurodollars, TBills and Bonds. The losses the following day were enormous. In some cases, 20% to 40% of account equity was lost in a single day. But these losses would have been correspondingly higher without the maximum position limits.
The limits were:
Level Type Maximum Units
1 Single Market 4 Units
2 Closely Correlated Markets 6 Units
3 Loosely Correlated Markets 10 Units
4 Single Direction – Long or Short 12 Units
Single Markets – A maximum of four Units per market.
Closely Correlated Markets – For markets that were closely correlated there could be a maximum of 6 Units in one particular direction (i.e.6 long units or 6 short units). Closely correlated markets include: heating oil and crude oil; gold and silver; Swiss franc and Deutschmark; TBill and Eurodollar, etc.
Loosely Correlated Markets – For loosely correlated markets, there could be a maximum of 10 Units in one particular direction. Loosely correlated markets included: gold and copper; silver and copper, and many grain combinations that the Turtles did not trade because of positions limits.
Single Direction – The maximum number of total Units in one direction long or short was 12 Units. Thus, one could theoretically have had 12 Units long and 12 Units short at the same time.
Adjusting Trading Size
There will be times when the market does not trend for many months. During these times, it is possible to lose a significant percentage of the equity of the account.
The Turtles did not trade normal accounts with a running balance based on the initial equity. We were given notional accounts with a starting equity of zero and a specific account size. For example, many Turtles received a notional account size of $1,000,000 when we first started trading in February, 1983. This account size was then adjusted each year at the beginning of the year. It was adjusted up or down depending on the success of the trader as measured subjectively by Rich. The increase/decrease typically represented something close to the addition of the gains or losses that were made in the account during the preceding year.
The Turtles were instructed to decrease the size of the notional account by 20% each time we went down 10% of the original account. So if a Turtle trading a $1,000,000 account was ever was down 10%, or $100,000, we would then begin trading as if we had a $800,000 account until such time as we reached the yearly starting equity. If we lost another 10% (10% of $800,000 or $80,000 for a total loss of $180,000) we were to reduce the account size by another 20% for a notional account size of $640,000. There are other, perhaps better strategies for reducing or increasing equity as the account goes up or down. These are simply the rules that the Turtles used.
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
Position sizing is one of the most important but least understood components of any trading system.
The Turtles used a position sizing algorithm that was very advanced for its day, because it normalized the dollar volatility of a position by adjusting the position size based on the dollar volatility of the market. This meant that a given position would tend to move up or down in a given day about the same amount in dollar terms (when compared to positions in other markets), irrespective of the underlying volatility of the particular market.
This is true because positions in markets that moved up and down a large amount per contract would have an offsetting smaller number of contracts than positions in markets that had lower volatility.
This volatility normalization is very important because it means that different trades in different markets tend to have the same chance for a particular dollar loss or a particular dollar gain. This increased the effectiveness of the diversification of trading across many markets.
Even if the volatility of a given market was lower, any significant trend would result in a sizeable win because the Turtles would have held more contracts of that lower volatility commodity.
Volatility – The Meaning of N
The Turtles used a concept that Richard Dennis and Bill Eckhardt called N to represent the underlying volatility of a particular market.
N is simply the 20-day exponential moving average of the True Range, which is now more commonly known as the ATR. Conceptually, N represents the average range in price movement that a particular market makes in a single day, accounting for opening gaps. N was measured in the same points as the underlying contract.
To compute the daily true range:
True Range = Maximum(H-L,H-PDC,PDC-L)
where:
H – Current High
L – Current Low
PDC – Previous Day’s Close
To compute N use the following formula:
N = (19 × PDN + TR) / 20
where:
PDN – Previous Day’s N
TR – Current Day’s True Range
Since this formula requires a previous day’s N value, you must start with a 20-day simple average of the True Range for the initial calculation.
Dollar Volatility Adjustment
The first step in determining the position size was to determine the dollar volatility represented by the underlying market’s price volatility (defined by its N).
This sounds more complicated than it is. It is determined using the simple formula:
Dollar Volatility = N × Dollars per Point
Volatility Adjusted Position Units
Thus, a unit for a given market or commodity can be calculated using the following formula:
Unit = 1% of Account / Market Dollar Volatility
or
Unit = 1% of Account / N × Dollars per Point
Examples
Heating Oil HO03H:
Consider the following prices, True Range, and N values for March 2003 Heating Oil:
Date High Low Close True Range N
11/1/2002 0.7220 0.7124 0.7124 0.0096 0.0134
11/4/2002 0.7170 0.7073 0.7073 0.0097 0.0132
11/5/2002 0.7099 0.6923 0.6923 0.0176 0.0134
11/6/2002 0.6930 0.6800 0.6838 0.0130 0.0134
11/7/2002 0.6960 0.6736 0.6736 0.0224 0.0139
11/8/2002 0.6820 0.6706 0.6706 0.0114 0.0137
11/11/2002 0.6820 0.6710 0.6710 0.0114 0.0136
11/12/2002 0.6795 0.6720 0.6744 0.0085 0.0134
11/13/2002 0.6760 0.6550 0.6616 0.0210 0.0138
11/14/2002 0.6650 0.6585 0.6627 0.0065 0.0134
11/15/2002 0.6701 0.6620 0.6701 0.0081 0.0131
11/18/2002 0.6965 0.6750 0.6965 0.0264 0.0138
11/19/2002 0.7065 0.6944 0.6944 0.0121 0.0137
11/20/2002 0.7115 0.6944 0.7087 0.0171 0.0139
11/21/2002 0.7168 0.7100 0.7124 0.0081 0.0136
11/22/2002 0.7265 0.7120 0.7265 0.0145 0.0136
11/25/2002 0.7265 0.7098 0.7098 0.0167 0.0138
11/26/2002 0.7184 0.7110 0.7184 0.0086 0.0135
11/27/2002 0.7280 0.7200 0.7228 0.0096 0.0133
12/2/2002 0.7375 0.7227 0.7359 0.0148 0.0134
12/3/2002 0.7447 0.7310 0.7389 0.0137 0.0134
12/4/2002 0.7420 0.7140 0.7162 0.0280 0.0141
The unit size for the 6th of December, 2002 (using the N value of 0.0141 from the 4th of December), is as follows:
Heating Oil
N = 0.0141
Account Size = $1,000,000
Dollars per Point = 42,000 (42,000 gallon contracts with price quoted in dollars)
Unit Size = (0.01 × $1,000,000) / (0.0141 × 42,000) = 16.88
Since it isn’t possible to trade partial contracts, this would be truncated to an even 16 contracts.
You might ask: “How often is it necessary to compute the values for N and the Unit Size?” The Turtles were provided with a Unit size sheet on Monday of each week that listed the N, and the Unit size in contracts for each of the futures that we traded.
The Importance of Position Sizing
Diversification is an attempt to spread risk across many instruments and to increase the opportunity for profit by increasing the opportunities for catching successful trades. To properly diversify requires making similar if not identical bets on many different instruments.
The Turtle System used market volatility to measure the risk involved in each market. We then used this risk measurement to build positions in increments that represented a constant amount of risk (or volatility). This enhanced the benefits of diversification, and increased the likelihood that winning trades would offset losing trades.
Note that this diversification is much harder to achieve when using insufficient trading capital. Consider the above example if a $100,000 account had been used. The unit size would have been a single contract, since 1.688 truncates to 1. For smaller accounts, the granularity of adjustment is too large, and this greatly reduces the effectiveness of diversification.
Units as a measure of Risk
Since the Turtles used the Unit as the base measure for position size, and since those units were volatility risk adjusted, the Unit was a measure of both the risk of a position, and of the entire portfolio of positions.
The Turtles were given risk management rules that limited the number of Units that we could maintain at any given time, on four different levels. In essence, these rules controlled the total risk that a trader could carry, and these limits minimized losses during prolonged losing periods, as well as during extraordinary price movements.
An example of an extraordinary price movement was the day after the October, 1987 stock market crash. The U.S. Federal Reserve lowered interest rates by several percentage points overnight to boost the confidence of the stock market and the country. The Turtles were loaded long in interest rate futures: Eurodollars, TBills and Bonds. The losses the following day were enormous. In some cases, 20% to 40% of account equity was lost in a single day. But these losses would have been correspondingly higher without the maximum position limits.
The limits were:
Level Type Maximum Units
1 Single Market 4 Units
2 Closely Correlated Markets 6 Units
3 Loosely Correlated Markets 10 Units
4 Single Direction – Long or Short 12 Units
Single Markets – A maximum of four Units per market.
Closely Correlated Markets – For markets that were closely correlated there could be a maximum of 6 Units in one particular direction (i.e.6 long units or 6 short units). Closely correlated markets include: heating oil and crude oil; gold and silver; Swiss franc and Deutschmark; TBill and Eurodollar, etc.
Loosely Correlated Markets – For loosely correlated markets, there could be a maximum of 10 Units in one particular direction. Loosely correlated markets included: gold and copper; silver and copper, and many grain combinations that the Turtles did not trade because of positions limits.
Single Direction – The maximum number of total Units in one direction long or short was 12 Units. Thus, one could theoretically have had 12 Units long and 12 Units short at the same time.
The Turtles used the term loaded to represent having the maximum permitted number of Units for a given risk level. Thus, “loaded in yen” meant having the 16 maximum 4 units of Japanese Yen contracts. Completely loaded meant having 12 Units. Etc.
Adjusting Trading Size
There will be times when the market does not trend for many months. During these times, it is possible to lose a significant percentage of the equity of the account.
After large winning trades close out, one might want to increase the size of the equity used to compute position size.
The Turtles did not trade normal accounts with a running balance based on the initial equity. We were given notional accounts with a starting equity of zero and a specific account size. For example, many Turtles received a notional account size of $1,000,000 when we first started trading in February, 1983. This account size was then adjusted each year at the beginning of the year. It was adjusted up or down depending on the success of the trader as measured subjectively by Rich. The increase/decrease typically represented something close to the addition of the gains or losses that were made in the account during the preceding year.
The Turtles were instructed to decrease the size of the notional account by 20% each time we went down 10% of the original account. So if a Turtle trading a $1,000,000 account was ever was down 10%, or $100,000, we would then begin trading as if we had a $800,000 account until such time as we reached the yearly starting equity. If we lost another 10% (10% of $800,000 or $80,000 for a total loss of $180,000) we were to reduce the account size by another 20% for a notional account size of $640,000. There are other, perhaps better strategies for reducing or increasing equity as the account goes up or down. These are simply the rules that the Turtles used.
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
Original Turtle Trading Rules: Chapter 2: Markets: What the Turtles Traded
The Turtles traded liquid futures that traded on U.S . exchanges in Chicago and New York.
The Turtles were futures traders, at the time more popularly called commodities traders. We traded futures contracts on the most popular U.S. commodities exchanges.
Liquidity
The primary criterion used to determine the futures that could be traded by the Turtles was the liquidity of the underlying markets.
Since we were trading millions of dollars, we could not trade markets that only traded a few hundred contracts per day because that would mean that the orders we generated would move the market so much that it would be too difficult to enter and exit positions without taking large losses. The Turtles traded only the most liquid markets.
In general, the Turtles traded all liquid U.S. markets except the grains and the meats. Since Richard Dennis was already trading the full position limits for his own account, he could not permit us to trade grains for him without exceeding the exchange’s position limits.
We did not trade the meats because of a corruption problem with the floor traders in the meat pits. Some years after the Turtles disbanded, the FBI conducted a major sting operation in the Chicago meat pits and indicted many traders for price manipulation and other forms of corruption.
The following is a list of the futures markets traded by the Turtles:
Chicago Board of Trade
New York Coffee Cocoa and Sugar Exchange
Chicago Mercantile Exchange
Comex
New York Mercantile Exchange
The Turtles were given the discretion of not trading any of the commodities on the list. However, if a trader chose not to trade a particular market, then he was not to trade that market at all. We were not supposed to trade markets inconsistently.
By OrinalTurtles.org
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
The Turtles were futures traders, at the time more popularly called commodities traders. We traded futures contracts on the most popular U.S. commodities exchanges.
Liquidity
The primary criterion used to determine the futures that could be traded by the Turtles was the liquidity of the underlying markets.
Since we were trading millions of dollars, we could not trade markets that only traded a few hundred contracts per day because that would mean that the orders we generated would move the market so much that it would be too difficult to enter and exit positions without taking large losses. The Turtles traded only the most liquid markets.
In general, the Turtles traded all liquid U.S. markets except the grains and the meats. Since Richard Dennis was already trading the full position limits for his own account, he could not permit us to trade grains for him without exceeding the exchange’s position limits.
We did not trade the meats because of a corruption problem with the floor traders in the meat pits. Some years after the Turtles disbanded, the FBI conducted a major sting operation in the Chicago meat pits and indicted many traders for price manipulation and other forms of corruption.
The following is a list of the futures markets traded by the Turtles:
Chicago Board of Trade
- 30 Year U.S. Treasury Bond
- 10 Year U.S. Treasury Note
New York Coffee Cocoa and Sugar Exchange
- Coffee
- Cocoa
- Sugar
- Cotton
Chicago Mercantile Exchange
- Swiss Franc
- Deutschmark
- British Pound
- French Franc
- Japanese Yen
- Canadian Dollar
- S&P 500 Stock Index
- Eurodollar
- 90 Day U.S. Treasury Bill
Comex
- Gold
- Silver
- Copper
New York Mercantile Exchange
- Crude Oil
- Heating Oil
- Unleaded Gas
The Turtles were given the discretion of not trading any of the commodities on the list. However, if a trader chose not to trade a particular market, then he was not to trade that market at all. We were not supposed to trade markets inconsistently.
By OrinalTurtles.org
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
Original Turtle Trading Rules: Chapter 1: A Complete Trading System
The Turtle Trading System was a Complete Trading System, one that covered every aspect of trading, and left virtually no decision to the subjective whims of the trader.
Most successful traders use a mechanical trading system. This is no coincidence.
A good mechanical trading system automates the entire process of trading. The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for a trader to trade consistently because there is a set of rules which specifically define exactly what should be done. The mechanics of trading are not left up to the judgment of the trader.
If you know that your system makes money over the long run, it is easier to take the signals and trade according to the system during periods of losses. If you are relying on your own judgment during trading, you may find that you are fearful just when you should be bold, and courageous when you should be cautious.
If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit. The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable traders’ success.
The Turtle Trading System was a Complete Trading System. Its rules covered every aspect of trading, and left no decisions to the subjective whims of the trader. It had every component of a Complete Trading System.
The Components of a Complete System
A Complete Trading System covers each of the decisions required for successful trading:
Markets – What to buy or sell
The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade markets that have too low a trading volume, or that don’t trend well.
Position Sizing – How much to buy or sell
The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders.
How much to buy or sell affects both diversification and money management. Diversification is an attempt to spread risk across many instruments, and to increase the opportunity for profit by increasing the opportunities for catching successful trades. Proper diversification requires making similar, if not identical bets on many different instruments. Money management is really about controlling risk by not betting so much that you run out of money before the good trends come.
How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.
Entries – When to buy or sell
The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.
Stops – When to get out of a losing position
Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.
Exits – When to get out of a winning position
Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.
Tactics – How to buy or sell
Once a signal has been generated, tactical considerations regarding the mechanics of execution become important. This is especially true for larger accounts, where the entry and exit of positions can result in significant adverse price movement, or market impact.
Summary
Using a mechanical system is the best way to consistently make money trading. If you know that your system makes money over the long run, it is easier to take the signals and follow the system during periods of losses. If you rely on your own judgment, during trading you may find that you are fearful just when you should be courageous, or courageous when you should be fearful.
If you have a profitable mechanical trading system, and you follow it religiously, then your trading will be profitable, and the system will help you survive the emotional struggles that inevitably result from a long series of losses, or large profits.
The trading system that was used by the Turtles was a Complete Trading System. This was a major factor in our success. Our system made it easier to trade consistently, and successfully, because it did not leave important decisions to the discretion of the trader.
By OriginalTurtles.org
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
Most successful traders use a mechanical trading system. This is no coincidence.
A good mechanical trading system automates the entire process of trading. The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for a trader to trade consistently because there is a set of rules which specifically define exactly what should be done. The mechanics of trading are not left up to the judgment of the trader.
If you know that your system makes money over the long run, it is easier to take the signals and trade according to the system during periods of losses. If you are relying on your own judgment during trading, you may find that you are fearful just when you should be bold, and courageous when you should be cautious.
If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit. The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable traders’ success.
The Turtle Trading System was a Complete Trading System. Its rules covered every aspect of trading, and left no decisions to the subjective whims of the trader. It had every component of a Complete Trading System.
The Components of a Complete System
A Complete Trading System covers each of the decisions required for successful trading:
- Markets - What to buy or sell
- Position Sizing - How much to buy or sell
- Entries - When to buy or sell
- Stops - When to get out of a losing position
- Exits - When to get out of a winning position
- Tactics - How to buy or sell
Markets – What to buy or sell
The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade markets that have too low a trading volume, or that don’t trend well.
Position Sizing – How much to buy or sell
The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders.
How much to buy or sell affects both diversification and money management. Diversification is an attempt to spread risk across many instruments, and to increase the opportunity for profit by increasing the opportunities for catching successful trades. Proper diversification requires making similar, if not identical bets on many different instruments. Money management is really about controlling risk by not betting so much that you run out of money before the good trends come.
How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.
Entries – When to buy or sell
The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.
Stops – When to get out of a losing position
Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.
Exits – When to get out of a winning position
Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.
Tactics – How to buy or sell
Once a signal has been generated, tactical considerations regarding the mechanics of execution become important. This is especially true for larger accounts, where the entry and exit of positions can result in significant adverse price movement, or market impact.
Summary
Using a mechanical system is the best way to consistently make money trading. If you know that your system makes money over the long run, it is easier to take the signals and follow the system during periods of losses. If you rely on your own judgment, during trading you may find that you are fearful just when you should be courageous, or courageous when you should be fearful.
If you have a profitable mechanical trading system, and you follow it religiously, then your trading will be profitable, and the system will help you survive the emotional struggles that inevitably result from a long series of losses, or large profits.
The trading system that was used by the Turtles was a Complete Trading System. This was a major factor in our success. Our system made it easier to trade consistently, and successfully, because it did not leave important decisions to the discretion of the trader.
By OriginalTurtles.org
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
Original Turtle Trading Rules: Introduction
The Turtle Experiment
Richard Dennis wanted to find out whether great traders are born or made.
The age old question: Nature or nurture?
In mid-1983, famous commodities speculator Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Richard believed that he could teach people to become great traders. Bill thought that genetics and aptitude were the determining factors.
In order to settle the matter, Richard suggested that they recruit and train some traders, and give them actual accounts to trade to see which one of them was correct.
Trading was Teachable "Trading was even moreteachable than I imagined," he says. "In a strange sort ofway, it was almost humbling." – Richard Dennis, Wall Street Journal.
They took out a large ad advertising positions for trading apprentices in Barron’s, the Wall Street Journal and the New York Times. The ad stated that after a brief training session, the trainees would be supplied with an account to trade.
Since Rich was probably the most famous trader in the world at the time, he received submissions from over 1000 applicants. Of these, he interviewed 80.
This group was culled to 10, which became 13 after Rich added three people he already knew to the list. We were invited to Chicago and trained for two weeks at the end of December, 1983, and began trading small accounts at the beginning of January. After we proved ourselves, Dennis funded most of us with $500,000 to $2,000,000 accounts at the start of February.
“The students were called the ‘Turtles.’ (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, ‘We are going to grow traders just like they grow turtles in Singapore.’)” – Stanley W. Angrist, Wall Street Journal 09/05/1989
The Turtles became the most famous experiment in trading history because over the next four years, we earned an average annual compound rate of return of 80%.
Yes, Rich proved that trading could be taught. He proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders.
Continue reading. The complete set of the rules that Richard Dennis taught his trainees follows, starting with the next chapter.
By OriginalTurtles.org
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
Richard Dennis wanted to find out whether great traders are born or made.
The age old question: Nature or nurture?
In mid-1983, famous commodities speculator Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Richard believed that he could teach people to become great traders. Bill thought that genetics and aptitude were the determining factors.
In order to settle the matter, Richard suggested that they recruit and train some traders, and give them actual accounts to trade to see which one of them was correct.
Trading was Teachable "Trading was even moreteachable than I imagined," he says. "In a strange sort ofway, it was almost humbling." – Richard Dennis, Wall Street Journal.
They took out a large ad advertising positions for trading apprentices in Barron’s, the Wall Street Journal and the New York Times. The ad stated that after a brief training session, the trainees would be supplied with an account to trade.
Since Rich was probably the most famous trader in the world at the time, he received submissions from over 1000 applicants. Of these, he interviewed 80.
This group was culled to 10, which became 13 after Rich added three people he already knew to the list. We were invited to Chicago and trained for two weeks at the end of December, 1983, and began trading small accounts at the beginning of January. After we proved ourselves, Dennis funded most of us with $500,000 to $2,000,000 accounts at the start of February.
“The students were called the ‘Turtles.’ (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, ‘We are going to grow traders just like they grow turtles in Singapore.’)” – Stanley W. Angrist, Wall Street Journal 09/05/1989
The Turtles became the most famous experiment in trading history because over the next four years, we earned an average annual compound rate of return of 80%.
Yes, Rich proved that trading could be taught. He proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders.
Continue reading. The complete set of the rules that Richard Dennis taught his trainees follows, starting with the next chapter.
By OriginalTurtles.org
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
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