Hi Guys,

I am Ludovico proudly member and associate of trading academy way of trading. Our mission is to enable our followers to become elite traders by enriching them with our expertise and knowledge. In my previous articles I focused on broadcasting price action techniques, how to take advantage of price fluctuation and market hot spots to enter and exit positions successfully.

Today, I want to introduce another trading system, developed in the early 80s by legendary traders Richard Dennis and his friend William Eckhardt, the “Turtle Trading System”

How to Build a trading myth

During 1983, Richard Dennis, expert commodity trader, who made his fortune in the futures market building up a trading account from $400 to $200mil, made a bet. He wagered his friend and colleague, William Eckhardt, that anyone could be taught to trade making consistent profits. That is how “Turtle System” was created.

Richard Dennis decided to place hiring post on “The New York Times” & “The Washington Post” for his new trading venture in Chicago. The main goal of this huge operation was to create a trading strategy based on clear and objective rules while eliminating emotions and judgments, leaving traders with a mechanical approach and nothing else.

Trading training program started off in December 1983 for two weeks and at the beginning of 1984, the twelve traders, “The Turtles”, who managed to pass through were given $1mil account to start trade under Richard Dennis’s guidelines. The results were extraordinary and by the end of year 4 the company altogether made a return on traded capital close to $175mil.

What is Turtle Trading System?

“Turtle Trading System” is renowned trend-following strategy, giving enormous edge to track sustained momentum. Coral to the technique is to look for breakouts for both upside and downside which will allow to open positions successfully.

Trading Rules

Rule #1 Markets Traded: “The Turtles”, traded futures contracts, following high liquidity that would allow them to take advantage of momentum given by big market players. They were mainly trading commodities, FX, bonds and S&P 500.

Rule #2 Positioning Size: Richard Dennis team had strict rules in regards position, they were using algorithm-based tactic which normalised USD volatility of the position, by correcting trade sizing based on USD market volatility. In this way, “The Turtles”, were optimizing diversification and ensuring each position was the same size in the market.

Rule was the more liquid was the market the less contract traded and vice versa. In order to gauge market volatility, “Turtle Trading System”, was looking at Exponential Moving Average (EMA) of the true range.

Rule #3 Entries: There were two main entry systems used:

  • 20-day breakout
  • 55-day breakout

Following this process, winning positions were added with a maximum of 4 entries

See Image Below

Figure 1: S&P 500 (ES), Turtle Trading Entry Point, 2013.06.05, 00:00

Rule #4 Stop Losses: Like every trading successful strategy risk management is crucial and “The Turtles” were taught to use stop losses at all the time. They would calculate stop loss placement before even triggering the trade to avoid major losses.

Rule #5 Exit:The Turtles” were opening many trades of which only few were big winners, other were small losses. They have exit strategy based on:

  • 10-day low for long positions
  • 20-day high for short positions

Rule #6 Tactics: Trend is your friend”, buy the strongest markets and sell the weakest that was a dogma in Richard Dennis’s firm, in addition they were taught to wait before placing orders rather than rushing getting the “best price” as crowd does.

This system is designed to exploit trending markets, however, most importantly this is a strategy which can only be successful if applied to perfection to the given rules.

Why Using Turtle Trading Rules?

Well, there are many lessons that can be extrapolated by the “The Turtles” strategy. Firstly, to become a successful trader is coral to have a system build up on specific entries, exits, position-sizing and stop-losses., otherwise a trader game can become only instinctive.

Secondly, even though Richard Dennis strongly believe in objectiveness of trading industry, psychology tend to be vital. Matching great mindset, train psychology and having a set of rules will result in building up a strong method which will grant a brilliant journey to success.

To sum up, in order to effectively invest, a trader must have a strategy and most of all needs to understand market is not there to fulfil his/her desire of success. Therefore, crucial for a professional trader “wanna be” is to be able to ride underperforming periods and correctly manage losses by improving his/her risk management and reward ratio.

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