The Complete Turtle Trader
I did not summarise the human stories and emotions behind it because it would be difficult for me to do justice to the stories. Basically you need to read it to understand the essence. But if you take my word, it just means anyone can be a trader, but you need to put in effort and practise hard.
Practise practise practise.
But I have taken the technical rules of the turtle trading system and symmarise here.
Take note these are the technical rules... do not run too far without the software.
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Trading your Own Account Tip #1
You need to calculate your edge for every trading decision you make, because you can't make "bets" if you don't know your edge. It's not about the frequency of how correct you are; it's about the magnitude of how correct you are.
Start keeping track of the Open High Low, and Close of each market you are trading.
System One
4 week price breakout for entry
-enter if market make a new 4week high (or low for shorting)
-exit if market makes a 2weeks low (or high for shorting)
If the last 4weeks breakout signal was a 2N loss they could take the breakout ("N" was simply their measure of volatility)
Direction of the 4weeks breakout was irrelevant, if their last trade was a short losing trade and a new long or short breakout hit, they could take it.
11weeks breakout (55days) for entry and 4weeks breakout in opposite direction to exit.
You are going to live emotionally losing 7 out of 10 trades.
This is the only way you were ever going to hook the real trend.
Feel free to experiment on the breakout length, do not fixate on specific values. The key will be to accept a breakout value and stick with it consistently. Test and practice are wise for confidence. Trust, but verify.
Stop worrying only about how you enter a trade. The key is to know at all times when you will exit.
1) distance from today's high to today's low
This is also the "Average True Range", ATR.
All turtles must know how to calculate N values.
N is a volatility measurement and a useful rule of thumb to classify how far a market has trended.
Trade the amount in terms of N, remove the emotions in term of money.
2% of your cash is 1 unit.
A Hard stop of 2 N
For example a corn futures is $50
A N of 7 cents, means a risk of $350 ($50 x 7)
2 N means a risk of $700.
If you have a $100,000 account, 2% means you can risk $2000 only.
$2000 / $700 (2N) = 2.67 future contract,
hence, do only 2 contract.
Hence, a corn unit is same as gold unit or a Cocacola Unit. Deal with the markets in number
A hard stop of 2N
If corn futures of 7 cents of N, means 2N = 14 cents.
An entry price of $250 would see a hard stop at $236
Just exit, do not overthink.
A small N means more contracts.
Trading your Own Account Tip #9
Assume a price entry at 100, and a N of 5.
Pile a new unit entry at 105, 110, pyramid till a maximum of 5 units.
On first day of trading, stops may be 1/2N. And from then onwards, 2N stops to be used. Once 2nd unit was bought, both stops brought up to the new unit's 2N stop.
As new units were added, all stops were brought up to the stop of the newest unit added.
Trading your Own Account Tip #10
1) Account size $50,000
Account risk 2%, or $1000.
Long signal in cattle at $74, 1N value is 0.80
1 point in live cattle is $400, so 1N = 0.8 = $320
2N value = $640
Account risk $1000 / $640 = 1.56 contract
Hence Trade 1 contract.
with Stop at $74 - $1.60 = $72.40
2) When price $74 move to $74.80, a new unit is added
Account value is now $50,000 + $320
Account risk 2% = $1006.40
With 1N remaining at 0.80 or $320, 2N = $640
Contract to trade = $1006.40 / $640 = 1.57 or 1 contract
New stop = $74.80 - $1.60 = $73.20
3) Next point to add unit = 74.80 + 0.80 = $75.6
Account value now = $50000 + $640 + $320
Account risk 2% or $1019.20
At $75.60, add 3rd unit, 1N has decreased to $0.70 or $280 hence 2N is $560
Contracts to trade $1019.20 / $560 or 1.82contracts = 1 contract
New stop at 75.60 - 1.40 = 74.20
Add new unit at 1N or 75.60 + 0.70 = 76.30
4) Addition of 4th unit
Account value = $50000 + unit one gain of $920 + unit two gain of $600 + unit three gain of $280
=$51800
Account risk 2% or $1036
at 76.30, 1N = 0.70 = $280, 2N = 1.40 = $560
Contracts to trade = $1037 / $560 = 1.85 contracts hence 1 contract.
New Stop at 76.30 - 1.40 = 74.90
Add new unit at 1N or 76.30 + 0.70 = 77.00
5) Additional of 5th and final unit
Account value = $50000 + unit one gain of $1200, units two gain of $880, unit three gain of $560, unit gain of $280 = $52920
Account risk of 2% or $1058.40
1N has increased to 0.85 or $340
2N value is now 1.70 or $680
Contracts to trade $1058.40 / $680 = 1.55 contract hence 1 contract.
New Stop at 77 - 1.70 = 75.30
Position exit
Live cattle rallied to 84.50 and exit criteria were met.
The pyramid allows profit with big trends, but many false breakouts that eat away capital
To protect capital, for every 10% in drawdown, Turtles cut their trading unit risk by 20%.
If a 11% drawdown happened, their trading size dropped from 2% to 1.6% (2% x 80%)
If a 22% drawdown happened, their trading size dropped from 1.6% to 1.28% (1.6% x 80%)
Unit size goes back to normal when capital goes back up.
One turtle lost 50% of his capital, but ended the year with a bonus when market start clicking.
Statistically, you will face more incidents of losses than wins, but the pyramid allows riding the trends.
Take note that you stop if you reach STOP 2N or via System One or System Two Stop.
Trading your Own Account Tip #11
Can trade any markets with liquidity and volatility, but do not trade 2 markets with high correlation, that would be like trading in 1 market with 2 units.
Diversify into many markets of long and short.
Example portfolio
Long in corn, feeder cattle, gold and Swiss Francs for 4 units
Short in british pound, copper and sugar, for 3 units.
Take the smaller number and divide by 2, subtract from the larger number
4 - (3/2) = 2.5
Thats the units at risk, that is how turtles added more units without adding risks.
The reason to diversify into so many markets is that they do not know when and where would be the next big trends, and they do not want to miss it. Diversify ensure they lose many, but caught on to that big trend.
