In Brief

A mechanical trend-following trading system  based on Price Momentum signals, specifically the 20 and 55 Day Highs. In 1983, commodities trader Richard Dennis bet with his business partner Bill Eckhart that he could teach a random group to be great traders.

"We're going to raise traders just like they raise turtles in Singapore".

Background

After taking out an advert in the Wall Street Journal, Dennis & Eckhart narrowed over 1,000 applicants to 21 men and 2 women. Dennis trained his Turtles, as he called them, for only two weeks. They were taught a simple trend-following system, trading a range of commodities, currencies and bond markets, buying when a market broke above the top of its recent range (and vice versa if it broke below). After they proved themselves, Dennis funded most of the trainees with $1 million to manage.

In summary, the Turtle Trading system is a trend-following system where trade initiations are governed by price channel breakouts, as taught by Richard Donchian. The original system consisted of two mechanical trading strategies, S1 and S2 with S1 being far more aggressive and short term than S2. 

Mechanics of Turtle Trading

The Turtles traded only the most liquid futures markets:

System 1: 

  • Go long (short) when the price exceeds the high (low) of the preceding 20 days. This breakout signal would however be ignored if the last breakout would have resulted in a winning trade (but an entry would be made at the 55 day level to avoid missing major market moves). The System 1 exit was a 10 day low for long positions and a 10 day high for short positions.  he System 1 exit was a 10 day low for long positions and a 10 day high for short position.

System 2:

  • Buy (sell) when the price exceeds the high (low) of the preceding 55 days. All breakouts for System 2 would be taken whether the previous breakout had been a winner or not. The System exit was a 20 day low for long positions and a 20 day high for short positions.

The rules also taught Turtles specific rules about position size, the use of stops, and to pyramid aggressively - up to a third of total exposure. A former Turtle, Curtis Faith, apparently improved the performance by adding a further filter, namely that…

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