Technical Trading Tips and Techniques by 
Just to provide some light reading for the weekend, I wanted to talk briefly about the famous “Turtle” traders, for those who may not be familiar with them.
In the early 1980’s, a well-known commodities trader by the name of Richard Dennis gathered a group of individuals and trained them to trade commodities using his specific trend-following methodology. This came about because Dennis intended to prove to his friend, another trader by the name of William Eckhardt, that good traders were made, and not born. The individuals that were recruited for this experiment were attracted to the opportunity by major newspaper ads. The final group was narrowed down through interviews with Dennis, and the ones that made the cut were eventually dubbed, the “Turtles.” This was due to the fact that Dennis had just returned from Singapore, and he wished to “grow traders just like they grow turtles.”
The set of trend-following trading rules that Dennis taught the Turtles are now widely-known. Back in the 80’s, these rules helped the Turtles earn over $100 million in trading profits as a group. The trading rules, which were based largely upon Richard Donchian’s channel breakout methods, are generally simple and easy to follow. One of the primary differentiators between those Turtles that were successful and those that were not as successful was the ability to follow these rules to the letter, without emotions or individual biases. In a nutshell, the entry rules, at their most basic level, are described by the following two sets of general system guidelines:
System #1 (shorter-term) – Enter a long position on a breakout above the price high of the preceding 20 days, or enter a short position on a breakdown below the price low of the preceding 20 days. If the most recent breakout was a true breakout that resulted in a winning trade, any current breakout entry signal would be ignored. If the most recent breakout was a false breakout (i.e., one that moved against the position by a certain predetermined amount after the breakout signal was given), the current breakout signal could be taken. If a breakout signal is not taken due to a winning trade on the most recent breakout, a trade would be taken anyway on a 55-day breakout signal to capture any major price moves.
System #2 (longer-term) - Enter a long position on a breakout above the high of the preceding 55 days, or enter a short position on a breakdown below the low of the preceding 55 days. Unlike System #1, regardless of whether the most recent breakout was a winning trade or a losing trade, all breakout signals are taken.
- James Chen, CTA, CMT
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The Turtles story is fascinating. I read Michael Covel’s book ‘The Complete TurtleTrader’, which not only gives an extensive background into how the turtle trader program started and where the turtles ended up, but also delves into the systems and rules they were taught. A very interesting read.
Covel contends that the turtle’s 1st system was entered on a breakout of the 20-day high and exited on a break below the preceding 10-day low. System 2, he says, was breakout of fifty-five days for entry and 20-days for exit. Of course, he wasn’t an actual turtle so who knows.
Of more interest to me was how they handled their stop losses and money management. In calculating their stops, they used a daily volatility value for their stops, something that many retail traders ignore. To protect against false breaks, their stops were not large, and so their win/loss percentage was very low. It was the long trend breakout they were looking to catch that would make up for those losses and some.
In terms of money management, they used an extremely aggressive pyramid strategy of adding to winning trades and subtracting from losing trades, all while trying to manage the total amount of risk on the line.
It’s a very interesting story that proves that anyone can be a successful trader by rigidly following a set of rules and properly managing their money.
GB
Gregory,
Thanks so much for your valuable input, as always. Yes, the Turtles story is fascinating. I know Michael Covel, as he provided a great passage for my new book. He is one of the top authorities on Turtle Trading - his description of their system is complete. And you’re absolutely right about how their risk and money management were key to their success back then. Thanks again for your comments, Gregory!
James Chen