The argument in the year 1983 between famous speculator Richard Dennis with his buddy Bill Eckhardt about great traders are born or trained resulted in training of 13 beginners in trade . They were funded and by continuous training for four years they mastered the rules, who were christened later as turtles. They showed a performance of earning a collective compound rate of return of over 80% and the Turtles trading system made a beginning.
The Turtles introduced the concept of “Volatility Normalization". In simple words, volatility normaliztion suggests that the more volatile an instrument, smaller is the trade. This means every instrument carries the same dollar risk. This is from where oft-repeated term *N, the 20 day exponential moving average of the ATR (true range) derives.
In the turtle trading system, the losses are taken seriously. Let us say, a turtle trader starts with a notional amount of $100 . In case, the trader looses $10 he would, normally, have $90 to manage future trades. However, in turtle trading system, the trader would have to manage the future trades with only $80 till he earns a profit of $10 to cover the loss.
Turtle trading system is based on two models. one being a 20 day breakout system and the other one is 55 day breakout system. If the market opened thru the 20 day hi9gh or low, or traded during the day, that would be signal to enter. One unit would be bought /sold to initiate the position. However, previous signal would have resulted in a successful trade, this signal would be ignored in an attempt to avoid whipsawing.
Once established, Turtle trading system will add a unit every 1/2 ‘N’ advance, up to maximum number of units they are permitted (4 single instrument, 6 in closely correlated markets such as Oil and Crude, 10 units in “Loosely Correlated markets, 12 units overall in a single direction). CONSISTENCY is the prime directive for all these. It was essential to be in all of them, so as not to miss few huge winners that made profits as majority of traders failed.
The Turtles trading system undoubtedly works. However, it requires iron willpower to follow the rules, and not to try and ‘bend’ the mechanics of the strategy. Most people are not mentally equipped to deal with the constant losses, even though they are handsomely offset by the occasional huge winner.
Turtles Trading System is a successful experiment by Richard Dennis to prove that trading in stocks requires strategy more than skill. Turtles used a 20 day exponential moving average of the ATR to decide their call on stocks. The starting signal is when a stock trades at a 20 day high/low price and is said to be 20 day breakout system. The losses are taken seriously with every 1% of loss debiting twice that amount from traders account. When applied consistently, the trading rule permits a trader to book huge profits enough to cover up majority of losses that happen regularly