Turtles Trading System - A Matured And Disciplined Way Of Trading And Making Money
The argument in the year 1983 between famous speculator Richard Dennis with his buddy Bill Eckhardt about great traders are born or trained resulted in training of 13 beginners in trade .They were funded and by continuous training for four years they mastered the rules, who were christened later as turtles. They showed a performance of earning a collective compound rate of return of over 80% and the Turtles trading system made a beginning.
The Turtles introduced the concept of "Volatility Normalization". In simple words, volatility normaliztion suggests that the more volatile an instrument, smaller is the trade. This means every instrument carries the same dollar risk. This is from where oft-repeated term *N, the 20 day exponential moving average of the ATR (true range) derives.
In the turtle trading system, the losses are taken seriously. Let us say, a turtle trader starts with a notional amount of $100 . In case, the trader looses $10 he would, normally, have $90 to manage future trades. However, in turtle trading system, the trader would have to manage the future trades with only $80 till he earns a profit of $10 to cover the loss.
Turtle trading system is based on two models. one being a 20 day breakout system and the other one is 55 day breakout system. If the market opened thru the 20 day hi9gh or low, or traded during the day, that would be singnal to enter. One unit would be bought /sold to initiate the position. However, previous singal would have resulted in a successful trade, this signal would be ingnored in an attempt to avoid whipsawing.
Once established, Turtle trading system will add a unit every 1/2 'N' advance, up to maximum number of units they are permitted (4 single instrument, 6 in closely correlated markets such as Oil and Crude, 10 units in "Loosely Correlated markets, 12 uits overall in a single direction). CONSISTENCY is the prime directive for all these. It was essential to be in all of them, so as not to miss few huge winners that made profits as majority of traders failed.
The system is structured in such a way that there are constant losses which is offset by an occasional huge winner. However, it takes extraordinary will power to wait for the happening and if that is possible, then the turtles trading system will certainly work.
The source of the turtles trading system is a disagreement between Richard Dennis and Bill Eckhardt. Dennis's theory that people could be taught to trade won out, and this system was born. The system is based on the volatility of trades and risk management. There are also 20 day breakout and 50 day breakout systems. The number of days refers to the high or low over that number of days, and signals a time to trade. The goal of this system is to win consistently. By following the Turtles system exactly, one is almost assured to win.
Published May 22nd, 2007
