![]() Here is the catch: you cannot trade everything, but you cannot trade only one market either. It may just be the most important issue and it is the only discretionary decision you'll have to make. This of course applies for bigger numbers: the unit risk would be decreased by 80% with a 40% drawdown! What to trade For every 10 percent in drawdown in their account, Turtles cut their trading unit risk by 20 percent. When markets turned around, this preventive behavior of reducing units increased the likelihood of a quick recovery, getting back to making big money again. How did Eckhardt teach the Turtles to handle losing streaks and protect capital? They cut back their unit sizes dramatically. However, aggressive pyramiding of more and more units had a downside: if no big trend materialized, then those little losses from false break-outs would eat away even faster at the Turtles' limited capital. The initial risk allocation for all trades was 2%. Close short positions if/when the price touches a 10-day high.Close long positions if/when the price touches 10-day low.The exit strategy using System One is as follows: Close shorts positions when the price touches a 20-day high.Exit long positions when the price touches a 20-day low.The exit strategy using System Two is as follows: The Turtles learned to exit their trades using breakouts in the opposite direction, which allowed them to ride very long trends. They could pyramid a maximum of 4 trades separated from each other by 1/2 volatility unit. Initial stop-loss was always ATR(30) * 2, or in their words, two volatility units.Īdditionally, the Turtles would pile profits back into winning trades to maximize their winnings, commonly known as pyramiding. The Turtles calculated the stop-loss for all trades using the Average True Range of the last 30 days, a value which they called N. Short a 20-day breakouts if last S1 signal was a loss.Buy a 20-day breakouts if last S1 signal was a loss.The entry strategy using System One is as follows: Short a 55-day breakout if we are not in the market.Buy a 55-day breakout if we are not in the market.The entry strategy using System Two is as follows: This fail-safe System Two breakout was how the Turtles kept from missing big trends that were filtered out. If the Turtles skipped a System One 20-day breakout and the market kept trending, they could and would get back in at the System Two (S2) 55-day breakout. What if the Turtles skipped the entry breakout and that skipped breakout was the beginning of a huge and profitable trend that roared up or down? Not good to be on the sidelines with a market taking off! However, the entry was filtered by a rule that was designed to increase the odds of catching a big trend, which states that a trading signal should be ignored if the last signal was profitable.īut this filter rule had a built-in problem. System One (S1) used a 20-day price breakout for entry. The Turtles learned two breakout variants or "systems". Almost every single one of them became a profitable trader, and made a little fortune in the years to come. The group of traders were shoved into a large sparsely furnished room in downtown Chicago and for two weeks Dennis taught them the rudiments of futures trading. In all he took on around 21 men and two women from diverse backgrounds. In mid-1983, Richard Dennis put an advertisement in the Wall Street Journal stating that he was seeking applicants to train in his proprietary trading concepts and that experience was unnecessary. Averaging 80% per year, the program was a success, showing that anyone with a good set of rules and sufficient funds could be a successful trader. What transpired in 1983-1984 became one of the most famous experiments in trading history. Dennis believed that traders could be taught to be great Eckhardt disagreed asserting that genetics were the determining factor and that skilled traders were born with an innate sense of timing and a gift for reading market trends. The Turtle Trader legend began with a bet between American multi-millionaire commodities trader, Richard Dennis and his business partner, William Eckhardt.
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