Turtle trading began when the famous trader Richard Dennis decided to determine whether traders could be trained to be successful, or whether trading ability is something that you are born with.  He funded a selection of trainees and taught them his methods.  The Turtles had mixed success, with some not making the grade (due to being unwilling or unable to follow his methods), but the most successful of them went on to make millions of dollars in trading profits based on the trading principles they used.  This article provides an overview of the Turtle trading rules that they used.

The basic idea of Turtle trading is that a person can become a successful trader simply by following a series of straightforward rules without variance.

There are no secrets to Turtle trading, but it is a complete mechanical system, covering entry rules, exit rules (at both a profit and loss) and money management rules.  A trading system should cover all of these aspects, not just entry rules.  Since that time, arguably better rules have been developed, but turtle trading can still be used as a useful starting point for your own system.

Firstly, the Turtles traded the most liquid futures markets.  They avoided illiquid markets because they were trading with millions of dollars.  The markets that they did trade covered agricultural markets, financials, metals and energy.  Turtles traded the most liquid and strongest contract months.

When determining the amount to trade, Turtles used a volatility based position sizing approach.   This means that the daily volatility (upward or downward movement in dollars) would be about the same, irrespective of the market or volatility.  Turtles would buy more lower volatility and fewer higher volatility contracts.  The number of contracts was determined based on a 2o day exponential moving average of average true range.  The Turtles diversified their trading capital across different futures contracts so that the dollar volatility of each position was approximately constant.  At the same time, they imposed trading limits on correlated markets to reduce risk.

The Turtles used a breakout based entry system.  A breakout system gives an entry signal when the current price exceeds the high or low of a certain number of days.  The Turtles used a 20 day breakout and a 55 day breakout.Using stop losses is essential for trading.  Turtles used a percentage based stop, closing positions with a 2% loss.  Using a percentage based loss automatically adjusts to market volatility.

Many beginning traders make the mistake of taking early profits.  An experienced trader lets profits run, because a few big profits are needed to compensate for the many small losses experienced in most trading systems.  Similar to the entry rules, Turtles used 10 and 20 day breakouts for exits.  If the price went against the position for a 10 or 20 day breakout, the position was closed.

Turtle trading is a trend following system. It is not infallible - in fact there are a lot of losses that are compensated by big profits, but it is a system with positive expectancy.

This article gives a very simple overview of the Turtle trading system, but is in no way comprehensively covered here.  I recommend the Original Turtles site for a more detailed explanation.  There are many sites that purport to sell you “Turtle secrets” for a high price, but this site was written by some of the original Turtle traders and delivers the goods. It is the only Turtle trading site that I recommend.

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Tags: richard dennis, turtle secrets, turtle traders, turtle trading

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