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Turtle trader strategy rules.

Essentially, Dennis believed anybody could be taught to master the futures markets but Eckhardt was much more skeptical. Instead, Eckhardt argued that Dennis had years of training and experience that enabled him to beat the market and profit from his approach to trading. As a result, Dennis devised an experiment that could be used to test his
hypothesis and prove that even a complete novice is capable of learning the strategies needed to master the market make consistent gains through trading. So what is the Turtle Trading strategy? Turtle Trading Experiment To settle this classic debate, Richard Dennis found a group of people with no experience in the world of finance. Using his own
money, Dennis opened large trading accounts for each person and began teaching his basic rules to beat the market. Needless to say, this type of experiment was largely unprecedented given the significant monetary risks involved when trading with real money. However, Dennis firmly believed in his ideas and he was willing to put this money at risk
in order to prove his point. The training sessions conducted by Richard Dennis would last for just two weeks but each person in the could repeat the lessons as many times as they wanted. He referred to his students as his “turtles,” which was an allusion to the turtle farms Dennis visited previously in Singapore. This affectionate name also
referenced the fact that Dennis believed he could help his trading teams grow quickly and efficiently, just like the farm grown turtles he encountered in Singapore. To find his team of Turtles (and settle his bet with Eckhardt), Dennis bought advertising space in the popular financial newspaper The Wall Street Journal. Thousands of people applied
with the hope of learning how to trade from one of the world’s most widely acknowledged masters of commodities trading. From the list, just 14 traders made the cut and were accepted into the first Turtle Trading program. Unfortunately, nobody knows the exact personal criteria that were used by Dennis to select his applicants. However, we do
know that the process involved a series of true/false questions which included: In trading, most of the money is made when an investor can buy an asset when prices hit their lows following a large downtrend. It’s unproductive to monitor every price quote in the markets traded by an investor. It’s productive to follow the market opinions of other
traders. If a trader has a trading account size of $10,000, each trade should risk $2,500. Once a trade position is established, investors must know the precise price location to start liquidating if losses are encountered.
How did you score on the quiz? Of course, some of these questions are clearly opinion-based and open to interpretation. However, according to the Turtle Trading method, questions one and three are false. Questions two, four, and five are true. Turtle Trading Rules Richard Dennis specifically instructed the first group of Turtle Traders to utilize
trend-following investment strategies. Essentially, the Turtle Trading system firmly believed that “the trend is your friend, you should ride it until the end.” To identify these trends in their earliest phases, investors were instructed to find trading ranges in the market and buy futures contracts that are making a breakout move higher. Conversely,
investors were instructed to sell short futures contracts after they fall through support levels (in a breakout to the downside). In his instructions, Richard Dennis informed his group of Turtle Traders to avoid relying on information from the newspaper or television. Instead, the group was instructed to solely watch prices. Clearly, the Turtle Trading
strategy relied on technical analysis strategies (rather than fundamental analysis of the market. Dennis also established additional parameters, which included: Buying futures as they reached a 40-day high and then exiting the position if prices fell below the 20-day low. Planning exits at the same time trade entries are planned. In other words, traders
should always know when to take profits and when to cut losses. Calculate market volatility using the Average True Range (ATR) and use these indicator readings to adjust position sizes. Establish larger trading positions in markets characterized by lower volatility levels and reduce position sizes when market volatility rises. Be prepared to carry
trades through significant drawdown periods, as this is the only way to exercise the patience needed to capture substantial returns. Exercise flexibility with the parameters that are set for all buy/sell signals. Be willing to test different value parameters for different assets and find the levels that work best in each market. On any single trade, never
risk more than 2% of the total account size.

Success Rates – Did the Turtle Trading Strategy Actually Work? According to published accounts by former Trading Turtle Russell Sands, the two groups of Trading Turtles that were trained personally by Richard Dennis earned over $175 million in just five years' time. As a result, Dennis was able to prove beyond any doubt that beginner traders are
fully capable of successfully mastering the market. Sands explained that the system’s strategies still work and tend to perform best in markets that are trending strongly. However, even without the help and instruction of market masters like Richard Dennis, it’s still possible to follow the basic tenets of Turtle Trading on an individual basis. The
general ideas of the system involve buying upside breakouts and selling downside breakouts once a trading range has been overcome by the market. Once the position is open, Turtle Traders watch for periods of consolidation or reversal as a signal to close the trade. Essentially, any time frame can be used when viewing the market and placing
trades. However, broader time frames (i.e. daily charts) tend to produce the best signals and exit signals must utilize shorter time frames in order to capture maximum profits. Despite the initial successes of the Turtle Trading system, it must be noted that the potential downsides could be as large as its upside. Specifically, the typical drawdowns
that might be expected with a simple trend-following trading system can be substantial in some cases. Trend-following systems work well in some market scenarios but can sometimes fail miserably in cases where price volatility reaches heightened levels. This is largely due to the fact that many price breakouts ultimately turn out to be false market
moves, and this can quickly result in a significant number of negative (losing) trades. Turtle Trading Still Has Its Advantages Overall, the Turtle Trading story remains one of the stock market’s greatest legends. While many analysts have attempted to debunk the processes outlined by the trading strategy, the moral of the story is that anybody can
learn to successfully trade the financial markets in a relatively short period of time. All that is required is some initial research, the establishment of a trading plan, and the internal fortitude to stick to that plan even in cases where the market is working against a position. Essentially, the Turtle Trading story shows us that a group of novice traders
were able to master the markets and generate substantial profits in the process. Of course, this doesn’t necessarily mean traders should rely on any single strategy for all market environments. Historical backtesting results tend to show that trend-following systems tend to be correct in only 40-50% of all market environments. Some analysts would
argue that this trading probability is no better than flipping a coin and that trend-following strategies should be abandoned altogether. This is because traders can expect to experience significant drawdowns that might fall outside of the risk tolerance levels that are suitable for many investment portfolios. The Turtle Trading experiment is one of the
great success stories in the history of the financial markets. The Turtle Trading strategy was developed by Richard Dennis in order to prove that even the most inexperienced traders were capable of mastering the financial markets and becoming profitable investors. The trading system developed by Dennis utilized trend-following strategies that
enabled a group of novice traders to generate returns of roughly $175 million in just five years. Most of these gains were accumulated in market environments which were characterized by strong momentum and clearly defined price trends. Some analysts have criticized the system, saying that it can only provide accurate signals in 40-50% of all
market environments. However, the successes of the initial trading groups show that any investor can start trading in the market (even with very little experience) and still find ways to accumulate significant profits when following a well-structured investment system. People Who Read This Also Viewed: Moving Average Convergence Divergence FBS
Review Trailing Stop Loss Orders In 1983, legendary commodity traders Richard Dennis and William Eckhardt held the turtle experiment to prove that anyone could be taught to trade. Using his own money and trading novices, how did the experiment fare? The Turtle Trading experiment was seen as a tremendous success.Market conditions are
always changing, and some question whether this style of trading could survive in today's markets.Turtle Trading is based on purchasing a stock or contract during a breakout and quickly selling on a retracement or price fall.The Turtle Trading system is one of the most famous trend-following strategies. By the early 1980s, Dennis was widely
recognized in the trading world as an overwhelming success. He had turned an initial stake of less than $5,000 into more than $100 million. He and his partner, Eckhardt, had frequent discussions about their success. Dennis believed anyone could be taught to trade the futures markets, while Eckhardt countered that Dennis had a special gift that
allowed him to profit from trading. The experiment was set up by Dennis to finally settle this debate. Dennis would find a group of people to teach his rules to, and then have them trade with real money. Dennis believed so strongly in his ideas that he would actually give the traders his own money to trade. The training would last for two weeks and
could be repeated over and over. He called his students "turtles" after recalling turtle farms he had visited in Singapore and deciding that he could grow traders as quickly and efficiently as farm-grown turtles.

To settle the bet, Dennis placed an ad in The Wall Street Journal, and thousands applied to learn trading at the feet of widely acknowledged masters in the world of commodity trading. Only 14 traders would make it through the first "Turtle" program. No one knows the exact criteria Dennis used, but the process included a series of true-or-false
questions, a few of which you can find below: The big money in trading is made when one can get long at lows after a big downtrend. It is not helpful to watch every quote in the markets one trades. Others' opinions of the market are good to follow.
If one has $10,000 to risk, one ought to risk $2,500 on every trade. On initiation, one should know precisely where to liquidate if a loss occurs. For the record, according to the Turtle method, 1 and 3 are false; 2, 4, and 5 are true. Turtles were taught very specifically how to implement a trend-following strategy. The idea is that the "trend is your
friend," so you should buy futures breaking out to the upside of trading ranges and sell short downside breakouts. In practice, this means, for example, buying new four-week highs as an entry signal. Figure 1 shows a typical turtle trading strategy. Figure 1: Buying silver using a 40-day breakout led to a highly profitable trade in November 1979
Source: Genesis Trade Navigator This trade was initiated on a new 40-day high. The exit signal was a close below the 20-day low. The exact parameters used by Dennis were kept secret for many years, and are now protected by various copyrights. In "The Complete TurtleTrader: The Legend, the Lessons, the Results" (2007), author Michael Covel
offers some insights into the specific rules: Look at prices rather than relying on information from television or newspaper commentators to make your trading decisions. Have some flexibility in setting the parameters for your buy and sell signals. Test different parameters for different markets to find out what works best from your personal
perspective.
Plan your exit as you plan your entry. Know when you will take profits and when you will cut losses. Use the average true range to calculate volatility and use this to vary your position size. Take larger positions in less volatile markets and lessen your exposure to the most volatile markets. Don't ever risk more than 2% of your account on a single
trade. If you want to make big returns, you need to get comfortable with large drawdowns. According to former turtle Russell Sands, as a group, the two classes of turtles Dennis personally trained earned more than $175 million in only five years. Dennis had proved beyond a doubt that beginners can learn to trade successfully. Sands contends that
the system still works well and said that if you started with $10,000 at the beginning of 2007 and followed the original turtle rules, you would have ended the year with $25,000. Even without Dennis' help, individuals can apply the basic rules of turtle trading to their own trading. The general idea is to buy breakouts and close the trade when prices
start consolidating or reverse.
Short trades must be made according to the same principles under this system because a market experiences both uptrends and downtrends. While any time frame can be used for the entry signal, the exit signal needs to be significantly shorter in order to maximize profitable trades. Despite its great successes, however, the downside to turtle trading
is at least as great as the upside. Drawdowns should be expected with any trading system, but they tend to be especially deep with trend-following strategies. This is at least partly due to the fact that most breakouts tend to be false moves, resulting in a large number of losing trades. In the end, practitioners say to expect to be correct 40%-50% of the
time and to be ready for large drawdowns. The story of how a group of non-traders learned to trade for big profits is one of the great stock market legends. It's also a great lesson in how sticking to a specific set of proven criteria can help traders realize greater returns.
In this case, however, the results are close to flipping a coin, so it's up to you to decide if this strategy is for you. In 1983, two commodity traders, Richard Dennis and William Eckhardt experimented to see if trading is an inborn skill or it can be taught.So they conducted interviews to find people who were the right fit.A few lucky candidates were
selected for the program—they were known as the turtle traders.Next, Richard Dennis gave the turtle traders a fixed set of trading rules to trade the markets (using his money).The result?It was astonishing! Several turtle traders made triple-digit returns within a few short years and some even went on the set up their own hedge funds.Clearly, the
turtle trading rules worked well in the 1980s.But the question is:Do the turtle trading rules still work today?Well, that’s what you’re about to discover in this post.So let’s get started…Turtle trading strategy: The original rules and resultsWhat is turtle trading?Turtle trading is basically a trend following strategy for the futures market.Here are the
rules of the turtle trading strategy:Entry: Buy when the price breaks above the 20-day highStop loss: 2 ATR from the entry priceTrailing stop loss: 10-day lowRisk management: 2% of your accountVice versa for short tradesMarkets traded:Bonds & Interest Rates: 30-Year US Treasury Bond, 10-Year US Treasury Bond, Eurodollar, 90-Day US Treasury
BillCommodities: Coffee, Cocoa, Sugar, Cotton, Gold, Silver, CopperEnergy: Crude Oil, Heating Oil, Unleaded GasCurrencies: Swiss Franc, Deutschmark, British Pound, French Franc, Japanese Yen, Canadian DollarNote: The original turtle trading rules are a little more complex as it trades both a long-term and short-term breakout. 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.)Other parameters:Transaction cost: $10 per tradeExecution: Market openTest period: 2000 - 2019Here’s an example of the trading setup: Now…To run this backtest, I’ll keep things simple and trade only the short-term breakout and without
scaling in.Also, some of the markets no longer exist (like Deutschmark, French Franc) so we will exclude these markets.
Results of the turtle trading rulesNumber of trades: 4322Winning rate: 36.83%Annual return: -0.38%Maximum drawdown: -95.38%And here’s the full breakdown over the last 20 years… Clearly, we can agree the turtle trading strategy isn’t doing well over the last 20 years.Now you’re probably thinking…“Does it mean the turtle trading rules have
stopped working?”Well, the answer is yes and no.Yes, you can say the original turtle trading rules have stopped working given the poor trading results you just saw.However, does it mean that trend following is dead?To answer that question, let’s first understand the principles of trend following…Buy high and sell higher (sell low and cover lower)Risk
a fraction of your capital on each tradeTrade a variety of markets from different sectors (as many as possible)Trail your stop loss to ride the trendDon’t predict, reactNow, if you take the turtle trading rules and compare it to the principles of trend following, you’ll notice there are a few things we can improve on.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).So, let’s modify our earlier turtle trading rules and see if we can make things better… Modified turtle trading rules and resultsEntry: Buy when the price breaks above the 200-day high (previously was 20-day breakout)Stop loss: 2 ATR
from the entry priceTrailing stop loss: 10-day lowRisk management: 1% of your account (previously was 2%)Vice versa for short tradesMarkets traded:Agriculture: Feeder Cattle, Rough Rice, Sugar, Coffee, Soybean, Soybean Meal, Soybean Oil, Wheat, Corn, LumberBonds: 30-year T Bond, 5-year T Note, Buxl, Bund, Bobl, BTP, Gilt, Canada
BondCurrencies: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/MXN, USD/ZAR, USD/INR, USD/RUB, USD/CNH, USD/JPYIndices: S&P 500, Nasdaq, Euro Stoxx, CAC 40, S&P/TSX 60, Nikkei, Hang Seng, China A50Non-agriculture: Brent Crude Oil, Gasoline, Heating Oil, Natural Gas, Gold, Silver, Palladium, Platinum, CopperResults of modified
turtle trading rulesNumber of trades: 2957Winning rate: 40.95%Annual return: 32.12%Maximum drawdown: -41.51%Here’s an example of the trading setup: And here’s the full breakdown over the last 20 years… As you can see, the results have dramatically improved.Now you might be thinking…“How do I know if you’re not curve-fitting the
results?”That’s a good question.So, let’s test the robustness of the modified turtle trading rules using different breakout entry.Here are the results of trading a 189-day breakout:Annual return: 31%Maximum drawdown: 44.51%Here are the results of trading a 227-day breakout:Annual return: 32.12%Maximum drawdown: 41.51%Clearly, both variants
of the breakout entry still yield a positive expectancy.So, what can you learn from this turtle trading “experiment”?3 important lessons you can learn from the turtle trading strategyBased on the data you’ve seen, the original turtle trading rules don’t work anymore. However, the principles behind it still work.So here’s the takeaway…#1: Understand
the concept behind your trading strategyYou must understand the logic and concept behind your trading strategy because that’s what powers your trading strategy (like how an engine powers a car).And if you understand the concept behind it, you can develop multiple trading strategies around it and diversify your risk.But without an understanding
of it, you’ll abandon the trading strategy when the drawdown comes—and you’ll have no idea how to fix it.#2: Manage your riskNow you might have a winning trading strategy, but without proper risk management, you’ll still blow up your trading account.Here’s the proof…Earlier, the modified turtle trading strategy produced an annual return of
32.12% and a maximum drawdown of 41.51%, with a 1% risk per trade.Now, what if we increased our risk to 4%?Well, you’ll get an annual return of 75.84% and a maximum drawdown of 96.82%. In other words, you blew up because it’s near impossible to recover from a 96% drawdown.Moral of the story?A trading strategy is useless without proper
risk management.#3: Adapt to changing market conditionsHere’s the thing:Market conditions change. This means a trading strategy won’t work all the time and it’ll go through a period of drawdown.However, there are times when a trading strategy stops working altogether (like the turtle trading strategy).So what now?Well, here’s what you can
do…#1: Find out if it’s the trading concept that fails or the trading strategy. Because if it’s the trading strategy, then you can tweak it and improve on things.#2: But if the concept has stopped working, then save your time and move onto another trading concept.#3: Develop trading strategies around the new concept that you’ve
learned.ConclusionThe original turtle trading rules don’t work anymore.But it doesn’t mean that trend following is dead, because with a few tweaks, we managed to develop a sound trend following 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.Now here’s what I’d like to know…What are your thoughts on the turtle trading strategy and the turtle trader's rules?Leave a comment below and share your thoughts with me.