Turtle trading is a trend-following trading strategy that was developed by Richard Dennis and William Eckhardt in the 1980s. The strategy is based on the idea that markets trend, and that it is possible to profit from those trends by following a set of specific rules.
How Turtle Trading Works ?
Turtle trading is a trend-following trading strategy that is based on identifying and following long-term trends in the market. The strategy uses a set of specific rules for entering and exiting trades, as well as managing risk. Here are the key steps involved in turtle trading:
- Identify the trend: The first step in turtle trading is to identify the long-term trend in the market. This is typically done by analyzing price charts and looking for patterns that indicate an uptrend or a downtrend.
- Determine position size: Once the trend has been identified, the next step is to determine the position size based on the volatility of the market and the trader’s risk tolerance. This is typically done using a system that calculates position size based on the average true range of the market.
- Enter trades: Once the position size has been determined, the trader looks for specific entry signals based on price breakouts and other technical indicators. These signals are based on specific rules that have been developed by the trader or based on the original turtle trading rules.
- Manage trades: Once a trade has been entered, the trader manages the trade using specific rules for managing risk and exiting the trade. This typically involves using stop-loss orders and other risk management techniques to limit losses and protect profits.
- Monitor the market: Throughout the trading process, the trader monitors the market for changes in trend or other signals that may indicate that the trade should be exited or adjusted.
Risk Management on Turtle trading
Risk management is an important aspect of turtle trading, as with any other trading strategy. The turtle trading strategy uses several techniques to manage risk, including position sizing, stop-loss orders, and profit targets.
- Position sizing: The turtle trading strategy uses a specific formula to determine the position size based on the volatility of the market and the trader’s risk tolerance. This ensures that each trade is sized appropriately based on the risk of the market.
- Stop-loss orders: Stop-loss orders are used to limit losses on each trade. The turtle trading strategy uses a specific formula to determine the stop-loss level based on the volatility of the market and the trader’s risk tolerance.
- Profit targets: The turtle trading strategy uses specific rules for taking profits on winning trades. This ensures that the trader takes profits when the market is favorable, while also limiting the risk of giving back profits on a trade.
- Risk monitoring: The turtle trading strategy involves monitoring the market for changes in volatility or other factors that may increase the risk of a trade. If the risk increases beyond a certain threshold, the trader may exit the trade or adjust their position size to manage the risk.
Turtle Trading Weakness
While turtle trading has been a successful strategy for many traders, there are also some weaknesses or drawbacks to the approach. Some potential weaknesses of the turtle trading strategy include:
- Late entries: The turtle trading strategy relies on price breakouts as a signal to enter trades. However, these breakouts can sometimes occur after the trend has already begun, resulting in late entries that may reduce profitability.
- Drawdowns: The turtle trading strategy can experience significant drawdowns during periods of market volatility or trend reversals. These drawdowns can be difficult to manage and may result in significant losses for the trader.
- Limited flexibility: The turtle trading strategy is based on specific rules for entering and exiting trades, as well as managing risk. This can limit the flexibility of the trader to adapt to changing market conditions or unexpected events.
- False breakouts: The turtle trading strategy can sometimes result in false breakouts, where a price breakout occurs but the market quickly returns to its previous range. This can result in losses for the trader who entered the trade based on the false breakout signal.
- Emotional discipline: The turtle trading strategy requires a high level of emotional discipline to follow the rules consistently and avoid making impulsive decisions based on market noise or emotions.
Turtle Trading Figure
The Turtle Trading figure is Richard Dennis, a successful commodities trader who is credited with developing and teaching the turtle trading strategy to a group of novice traders in the 1980s. The story goes that Dennis, who had made a fortune trading commodities, believed that successful trading was a skill that could be taught and learned, rather than a talent that some people were born with and others were not.
In 1983, Dennis decided to test his theory by recruiting and training a group of 21 novice traders, who became known as the “Turtles”. He taught them his trend-following strategy, which involved using specific rules for entering and exiting trades, as well as managing risk. The Turtles went on to become very successful traders, making millions of dollars in profits over several years.
The story of the Turtles and their success with the turtle trading strategy has become legendary in the world of trading, and Dennis is often cited as an example of a successful trader who was able to teach others his methods and achieve great success as a result.
Successfull Traders
There have been several successful traders who have used the turtle trading strategy to achieve great success in the markets. Some of the most famous and successful turtle traders include:
- Curtis Faith: Faith was one of the original members of the turtle trading program and went on to become one of the most successful turtle traders, reportedly making over $30 million in profits over five years.
- Jerry Parker: Parker was another original turtle trader who went on to found his own trading firm, Chesapeake Capital, which has reportedly generated over $1 billion in profits since its inception.
- David Harding: Harding is the founder of Winton Capital, one of the largest and most successful hedge funds in the world. While he did not learn the turtle trading strategy directly, he has credited the approach with influencing his trend-following trading style.
- Paul Rabar: Rabar was a former turtle trader who went on to found his own trading firm, Rabar Market Research, which reportedly generated over $1 billion in profits over two decades.
- Liz Cheval: Cheval was the only female turtle trader and reportedly made over $1 million in profits in her first year of trading.
These traders, along with many others, have demonstrated that the turtle trading strategy can be a successful approach to trading, if applied consistently and with proper risk management techniques.