Dennis placed an ad in The Wall Street Journal, and thousands applied. After going through a rigorous application process, 14 traders would make it through the first Turtle program. Several true and false questions were used to sort through the thousands of applicants. The Turtles learned the nuances of a trading strategy.

There were specific instructions on how to implement a trend-following strategy. The concept is simple, and Turtle trader rules made the process easy to follow. You purchase futures contracts that are breaking out after consolidation has formed a defined range. For example, you might be buying futures contracts at a 4-week high or selling futures contracts when they hit a 4-week low.

These concepts were all part of the Turtle system rules. Dennis told the Turtles that they should not allow factors such as TV commentators or News Paper Journalists to impact their trading criteria.

They incorporated strict risk management parameters for their initial stop-loss levels to minimize risk of loss. To determine the position size, you would calculate the historical volatility of each asset.

The average true range is an indicator that can measure volatility. Volatility is the percent move that you should expect from an asset calculated annually. The Turtles were instructed to take more significant positions when the volatility was subdued and smaller when the volatility rose.

One key motto is that the returns are a function of the risk that you take. If you want to generate significant returns, you need to get comfortable with bigger drawdowns. There are several anecdotal reports of the success of the Turtle trader program. Dennis proved that beginners could successfully learn how to trade if you provide them with specific rules to follow. The Turtles strategy can be mimicked today, and if you are willing to accept large drawdowns, you will likely be successful over time.

Dennis employed the system to look for market breakouts that will continue to trend higher or lower. You can also alter the risk management rules a bit to meet your personal risk parameters. The transactions can be in the form of long and short trades. According to the same principles under this system, short transactions must be made because a market experiences uptrends and downtrends. Dennis needed his students to understand that drawdowns were part of the strategy and how you dealt with a drawdown was as important as how you handled success.

Trend-following systems generally experience significant drawdowns, as the reward that you garner is a function of the risk that you take. This scenario occurs because most breakouts tend to be false moves, resulting in many losing trades. The Turtles were required to trade liquid markets. The size of their positions were relatively large, and therefore, they needed to avoid experiencing slippage when they entered and exited trades. Grain futures were off-limits because Dennis himself was maxing out his trading account trading these future products.

Many of the transactions consisted of 10 and year treasury bond futures contracts along with U. Treasury bills. Trading forex futures such as the British Pound, the Japanese Yen and the Canadian dollar helped diversify the portfolio further.

The Turtles were also allowed to trade precious and base metals such as gold , silver , and copper. The Turtle Traders were provided a sophisticated position sizing algorithm. They would change the size of their position based on the volatility of the asset.

The size of the position was a function of the volatility of the market. The larger the volatility, the smaller the position. By changing the size of the position, the Turtles were able to generate consistent returns. The formula was based on the day exponential moving average of the True Range of the underlying asset. This method created a system that described the dollar volatility per point.

Also, it scales into winners as the price moves in your favour. If you want the exact turtle trader's rules , then check this out. Also, some of the markets no longer exist like Deutschmark, French Franc so we will exclude these markets. Yes, you can say the original turtle trading rules have stopped working given the poor trading results you just saw. For example, you can increase the number of markets to trade, reduce your risk per trade, and increase the length of the breakout to reduce whipsaw.

Agriculture: Feeder Cattle, Rough Rice, Sugar, Coffee, Soybean, Soybean Meal, Soybean Oil, Wheat, Corn, Lumber. Non-agriculture: Brent Crude Oil, Gasoline, Heating Oil, Natural Gas, Gold, Silver, Palladium, Platinum, Copper. However, the principles behind it still work. And if you understand the concept behind it, you can develop multiple trading strategies around it and diversify your risk.

Earlier, the modified turtle trading strategy produced an annual return of Market conditions change. However, there are times when a trading strategy stops working altogether like the turtle trading strategy. The key thing is to focus on the trading concept and not blindly follow a trading strategy. Because once you understand the concept, you can build multiple trading strategies from it. What are your thoughts on the turtle trading strategy and the turtle trader's rules?

While I appreciate your work in promoting Trading, I am a bit disappointed that the you seem to conclude that the Turtle Trading strategy does not work, even though you are not trading the strategies as they were originally designed. Fx you are not testing based on the fact that the turtles position sizes where carefully defined by taking volatility into account and also the fact that they were scaling in on their positions.

That said, I am a big fan of yours, and one of my inspirations in my own personal trading journey — and I am also going to backtest you enhanced Turtle strategy, which I also appreciate 🙂. I like the practical analysis of the Turtles trading system as I have been wondering if there is still value in the original system and this article shows no but there is obviously value in trend systems.

Does the market traded make much of a difference to results — so how would it work on stocks? Nice experiment, Rayner; the Turtle Rules remain as fascinating as ever.

Thank you Rayner for the email, I think the turtle idea all boils down to proper risk management, less emotional you become the better your trades. Hey Andy, he uses a period Donchian channel in this case. So a SL could be manually or coded to trail this. Rayner, thanks for the info—if the market goes sideways for 10 days do you still exit at the 10 day low? Hi Rayner, thank you for an excellent experiment. Thanks for your analysis. The concepts can be adhered to, as your analysis demonstrates.

Trend following and learning how to stop yourself out are key to capturing gains. Money management is another feature of Turtle trading that is useful in planning the trading volumes for initial entries and to build additional position sizes. This often-overlooked feature is addressed in the Turtle Trading Rules and has defined rules for position sizing using different volatility conditions.

There is a long-term ongoing discussion regarding the trading instruments used by the original Turtles. The Original Turtles used exchanges and commodities which were traded mostly in terms of the trading volume. So, it is necessary to choose a trading instrument with the same features. In the current market conditions, traders can look for trading instruments in stocks, forex, and futures markets and trade them effectively using the Turtle trading rules, because these markets have ample liquidity and provide decent trading volumes.

The ATR of these instruments can be measured and the historical trading data is readily available for calculation using the software. Backtesting is the best method to test any trading strategy. Backtesting can be automated using much software available for free or through specialized software for this purpose.

Since Turtle trading rules are mechanical, backtesting them is very easy and can be done with little effect. Most marketplaces provide historical data and are available free. Moreover, backtesting may reveal hidden flaws in the trading strategy and the input conditions. On the other hand, backtesting and optimization of the input parameters for the long run can provide the trader with a complete snapshot of the performance.

Essentially, backtesting will assist the trader in identifying and unearthing the performance of any trading instrument using the Turtle trading rules. There are much software that can be used to code the Turtle trading rules using Turtle trading strategy Python and other coding languages can automate the system. Turtle trading rules excel sheets can be used to monitor the performance using manual entry and exit points.

Turtle trading system indicators can also be developed and coded easily. In fact, there are many indicators, scripts, and experts available in the market to trade using the Turtle rules. All of them take advantage of the mechanical trading rules. Many books are available in print and soft copies from many Turtles with the trading rules and strategies. A few Turtles teach the strategy and also have modified the original trading rules to accommodate the modern days trading conditions and volumes, The Turtle trading rules pdf has short descriptions and also detailed illustrations.

Like any trading system, every trader should spend considerable time understanding the basic rules and the criteria before applying them in their trading accounts.

There is no substitute for understanding a mechanical rule-based system, by manually trading it. The Turtle Trading Rules is indeed a mechanical rule-based system, which many people fail to follow. Many traders fail to follow the rules and break the rules repeatedly due to the intermittent losses and the drawdown the system produces. The basic issue with this problem is due to a lack of confidence in the trading system, this can be overcome only by repeatedly testing the strategy by trading manually or backtesting it using automated software.

Furthermore, traders tend to use and apply a trading system as it is without doing enough research and understanding the core ideas.

Do you believe that you are the kind of trader that will perform better with hard-and-fast rules? If not, you are not an anomaly.

Many novice traders start the investment process by using a discretionary trading process but have little experience, and when the markets become problematic, they get flustered. Successful traders often rely on the use of methods or a trading plan for success. By creating rules for trading, you can remove the emotional element that humans portray.

A systematic approach to trading follows the rules and does not succumb to difficult emotional situations like making or losing money. In , trader Richard Dennis and William Eckhardt engaged in an experiment to prove whether trading could be taught.

This Turtle trading experiment incorporated the Turtle Trading method. Dennis believed he could create such a system, and Eckhardt thought it was a trader that made the Turtle trading system tick.

The question is whether the trader makes the strategy or the strategy makes the trader. The experiment was named the Turtle Experiment. The Richard Dennis strategy was a basic trend-following strategy. Students were instructed to use hard-and-fast Turtle trading rules, and they were told that if they did not veer from the path, they would be successful.

The benefit of a trend-following strategy is that it can capture robust gains but the downside of the strategy is that it often loses more times than it wins. This concept, where you can lose more times than you win, and still be successful goes to the heart of proper risk management.

Here is a quick example. Most of the time, markets consolidate sideways. When the markets trend, you can make money as a trend following trader. Your goal is to ride the wave when it occurs and get off when the wave reaches the beach.

The Turtle trading system also includes what assets you could trade, as well as a risk management scheme. Richard Dennis used his own money to perform the Turtle experiment. Dennis did substantial screening before picking the individuals that would participate in the Turtle experiment.

He wanted to make sure that the people chosen had the aptitude to follow the trading instructions. Dennis placed an ad in The Wall Street Journal, and thousands applied. After going through a rigorous application process, 14 traders would make it through the first Turtle program. Several true and false questions were used to sort through the thousands of applicants. The Turtles learned the nuances of a trading strategy.

There were specific instructions on how to implement a trend-following strategy. The concept is simple, and Turtle trader rules made the process easy to follow. You purchase futures contracts that are breaking out after consolidation has formed a defined range. For example, you might be buying futures contracts at a 4-week high or selling futures contracts when they hit a 4-week low.

These concepts were all part of the Turtle system rules. Dennis told the Turtles that they should not allow factors such as TV commentators or News Paper Journalists to impact their trading criteria. They incorporated strict risk management parameters for their initial stop-loss levels to minimize risk of loss.

To determine the position size, you would calculate the historical volatility of each asset. The average true range is an indicator that can measure volatility. Volatility is the percent move that you should expect from an asset calculated annually. The Turtles were instructed to take more significant positions when the volatility was subdued and smaller when the volatility rose. One key motto is that the returns are a function of the risk that you take.

If you want to generate significant returns, you need to get comfortable with bigger drawdowns. There are several anecdotal reports of the success of the Turtle trader program. Dennis proved that beginners could successfully learn how to trade if you provide them with specific rules to follow. The Turtles strategy can be mimicked today, and if you are willing to accept large drawdowns, you will likely be successful over time. Dennis employed the system to look for market breakouts that will continue to trend higher or lower.

You can also alter the risk management rules a bit to meet your personal risk parameters. The transactions can be in the form of long and short trades. According to the same principles under this system, short transactions must be made because a market experiences uptrends and downtrends. Dennis needed his students to understand that drawdowns were part of the strategy and how you dealt with a drawdown was as important as how you handled success.

Trend-following systems generally experience significant drawdowns, as the reward that you garner is a function of the risk that you take. This scenario occurs because most breakouts tend to be false moves, resulting in many losing trades. The Turtles were required to trade liquid markets. The size of their positions were relatively large, and therefore, they needed to avoid experiencing slippage when they entered and exited trades. Grain futures were off-limits because Dennis himself was maxing out his trading account trading these future products.

Many of the transactions consisted of 10 and year treasury bond futures contracts along with U. Treasury bills. Trading forex futures such as the British Pound, the Japanese Yen and the Canadian dollar helped diversify the portfolio further. The Turtles were also allowed to trade precious and base metals such as gold , silver , and copper. The Turtle Traders were provided a sophisticated position sizing algorithm. They would change the size of their position based on the volatility of the asset.

The size of the position was a function of the volatility of the market. The larger the volatility, the smaller the position. By changing the size of the position, the Turtles were able to generate consistent returns.

The formula was based on the day exponential moving average of the True Range of the underlying asset. This method created a system that described the dollar volatility per point. For example, the Turtles would build a position which was one percent of the account divided by the dollar volatility. The units for each market will vary, and the unit value will also fluctuate as the day exponential moving average changes over time. A single position was limited to 4 units.

For holding a position in multiple markets, the Turtles could have a total of 10 units. The Turtles used two entry systems. They used a day breakout system to enter one unit when the price moved above the day high or dropped below the day low.

Turtles would also skip a trade if the last trade was a winner. Turtles also used a longer-term system based on the day breakout.

The Turtles entered one unit when the price moved above the high of the last 55 days or dropped below the low of the previous 55 days. Trades were entered on the market close to confirm the trading criteria. The Turtles added to winning positions to take advantage of the movement of a trend. They used something called pyramiding, which is taking a more prominent position as the price moves favorably. This criterion is based on the transaction price and not the actual breakout price.

At the outset of each trade, a stop loss is placed above or below the entry price. The Turtles used a volatility-based system to exit their positions. The short-term trading system used a day low on a long position and a day high on short positions. The Turtles would use a day high or low on long and short positions for the long-term trading system, respectively. These criteria are used to make sure that a trend is not broken and needs to be observed. Several tests, including one conducted by Trading Blox, backtested the Turtle Trading System and found that returns were completely flat between and The method in its original form has not worked well in recent years.

What is not clear is whether small changes to the system will reveal positive results. When the Turtle trading system was developed, access to computers that could back-test a strategy was difficult to come by. There were no personal computers that could run systems that could quickly determine if a systematic approach would be successful.

Today, retail traders have plenty of access to trading platforms that provide back-testing capabilities. The strategy that was used by the Turtles could be widely replicated today. Today, for a trend-following strategy to work, you need to have a more sophisticated way to manage your risk. The stop loss criteria that the Turtles used would likely generate losses that would create too large of a drawdown.

Additionally, traders today have access to a wide variety of technical analysis tools that can pinpoint a specific type of entry criteria. Several technical indicators have been developed based on the Turtle Trader method. These indicators can be successful during trending market conditions.

To avoid this you can add a filter that can help you determine if the market is trending or consolidating. For example, if you are planning to use a moving average crossover , such as when the day moving average crosses above or below the day moving average, you might consider evaluating momentum to see if the price is accelerating or decelerating.

This information can help you decide whether you should enter at a breakout level or wait for a slight pullback. For example, if you receive an entry criteria when the RSI is printing a reading of 80, you might consider letting the market pullback on a buy signal before entering your trade. The Original Turtle Trading Story describes a bet between Richard Dennis and William Eckhardt.

All of them take advantage of the mechanical trading rules. His insights into the live market are highly sought after by retail traders. Trend following and learning how to stop yourself out are key to capturing gains. Earlier, the modified turtle trading strategy produced an annual return of Turtle trading strategy: The original rules and results. That said, I am a big fan of yours, and one of my inspirations in my own personal trading journey — and I am also going to backtest you enhanced Turtle strategy, which I also appreciate 🙂. The Turtle Trading Rules is indeed a mechanical rule-based system, which many people fail to follow.

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