Turtle Strategy - Trading classic of “old school”

Legendary strategy, which brought millions of dollars to traders around the world. The famous experiment showed that anyone can trade on the market if follows the rules of the system. Trading philosophy understanding which, you’ll discover new ways to get profit on Forex. The classical system “Turtle”, in spite of its age, carries many lessons allowing to glimpse into the very essence of price movements and big trends.

Features of “Turtle” trading system

Platform: Any
Currency pairs: EURUSD, USDRUB, AUDUSD, USDCAD, NZDUSD, USDSGD, EURGBP, Gold, stocks, commodities, indices
Timeframe: D1
Trading Hours: around the clock

Recommended brokers: Roboforex

Reference material

Michael W. Covel book “The Complete Turtle Trader”

How to install indicator in MT4

How to install strategy in MT4

The history of the strategy

Many years ago, two traders, Richard Dennis and William Eckhardt argued whether it is possible to educate the common man trading just by teaching him the trade system and encouraging to follow it’s rules with discipline.

Richard Dennis said that it is possible, and William Eckhardt believed that it is impossible. He thought that you need to have some sixth sense or intuition to work on the exchange. Simply to have a talent.

The result of their dispute was an experiment. Richard Dennis posted an ad and got people off the street to teach his trading system. At the end of training, he assigned his best students a certain amount of money for trading. What do you think, what happened? Without his close control some of the students have earned millions, but someone from his group, on the contrary, lost some. The market was the same. They were trading at the same time. The rules for each of them were the same.

This experiment shows that trading success depends not so much on the system, but more from the man himself.

No matter how much you know. If you do not know how to apply it in practice, you’re not as clever as you might think.

Today we will see, what was was the system that Richard Dennis taught his students, and try to understand why some traders lost money and some earned.

Additional indicators

• Azzx_donchian (Donchian Channels)

Builds channels by highs and lows for the specified number of days.

In the case of the period of 20 days last 20 candles are taken into account. The highest and the lowest price are used. Similarly with a period of 55 days. There is nothing difficult about it. You can easily build a channel yourself using pencil and paper.

• TheClassicTurtleTrader (Turtle)

You can find a breakdown on your own, but it is faster and easier to use additional indicators. TheClassicTurtleTrader shows the breakdowns by red and blue dots, shows the ins and outs by the arrows.

It is set on the chart twice (two templates). One with a period of 20 and a stop period of 10. Second with a period of 55 and stop period of 20.

• ATR

The standard indicator in the terminal.
Set with the period 20.

In this picture, a template with 55 days period. Blue arrow shows the entrance of purchase because the price breaks the upper limit of the channel - then strong upward trend appeared.

Entry rules

Two kinds of trade are based on the breakdown of Donchian channel. Transactions are opened at once, as soon as the price breaks the channel. You don’t have to wait for the candle to close.

More short-term entrance:

- Price breaks 20-day Donchian channel.

- The deal on the previous signal is closed with a loss, does not matter whether we entered or not.

If the previous transaction was closed with a profit, we skip the entrance. If it turns out that the breakdown is profitable, then later we enter when the 55-day channel is broken.

In the picture, you can see the EUR/USD pair daily chart.

Green lines reflect Donchian Channel boundary with a period of 20, ie. 20 days.
When the price breaks the channel, we enter the transaction.

More long-term entry:

-Price breaks 55-day Donchian channel.

Interesting that we don’t use the previous transaction’s filter, we always enter.

Stop loss

For Forex, there is a simplified form of calculation for turtles. It looks as follows:

ATR (20) * 2

An interesting fact, but then turtles didn‘t place stop order‘s in the market, as they traded fairly large amounts. Thus, they did not want to show it to the broker. Instead of placing the order, they were keeping track of the price during the day and organized entrance as soon as it reached the break level.

It was important that the loss did not exceed certain values associated with the current volatility in the market. Stop-losses were virtual.

But we do not sell billions, so we need to be sure to place these stop-losses.

In order to work with a formula for calculating the stop-loss, you should add ATR indicator on the chart. In the final transaction stop-loss would be 90 points:

This stop-loss is set solely for the purpose of insurance, as you get out of the deal according to the rules, which are described below, thus, the stop-loss works out rarely.

It is set in order to protect yourself from unpleasant situations with some sharp price movements during the day.

Take Profit

As you know, if there is an entry, there should be a way out.

• For a transaction opened after the breakdown of the 20-day channel, the exit occurs at the time of breakdown of the opposite 10-day channel.
• For a transaction opened after the breakdown of the 55-day channel, the exit occurs at the time of breakdown of the opposite 20-day channel.

In the first case, turtles went out in the breakdown of a 10-day channel. In the graph it is marked by red borders:

Auxiliary indicator clearly shows the point of exit - it’s the first red point in the chart after that when we opened sell order. If you hover over it, the name, time and a note about long positions exit will be displayed.

In the case of the 55-day channel, an exit is carried out after breaking a 20-day channel.

Let’s open a BUY order and look at it again. In the marked blue point, the top of the 20-day channel was broken down. Here we have come out from the deal:

That is how the exit from such positions is executed. It is important to closely monitor the indicators and perform enters and exits in case of appropriate signals.

Additional orders

Set on a distance every 0,5 ATR from the entry point.

We could enter the market somewhere on this level. ATR would amount to 94 points. Half of it is 47. After 47 points, we would have placed another order in the same direction. After 47 another one and after another 47 points one more.
The additional orders would be set the same way every 70 points, like this:

If ATR was different, additions would be carried out in equal parts of it’s half.

Money management

Now, let’s talk about the money management.

• The risk for one trade is not more than 1%.
• When using the additional orders, the risk of each transaction is 0.25%.

I would like to say that the turtles would never risk by more than 1% of the deposit for one deal. If you also want to use additional orders, you should use on each trade about 0.25% risk of deposit.

Regarding the stop-losses of additional orders is that they are calculated in the same way as described above. When reaching the additional order, stop-loss of the position is transferred to a higher or lower level. Simply shifts a little.

I‘ll certainly see comments on the subject of low-risk per trade, but turtles have been trading on a large number of markets and instruments. This was a precautionary measure to ensure that in the case of losses on individual positions, in general, you remain in the game. This is the main task of money management - allowing us to stay in the game after large series of unsuccessful trades.

Examples of trades

Now let’s look at some examples of entries in the market.

• On the penultimate entrance at the intersection of 20-day channel, everything will be easy

The position here is closed with a small profit of around 15 points:

A position opened at the breakdown of 55-day channel would be closed by the safety stop-loss:

Please, note that we would have missed the entrance on the last maximum at the breakdown of the 20-day channel because the previous 20-day channel breakdown brought us profit.

• Let’s see, would we be able to enter a transaction on an example of another breakdown.

Potentially it is profitable:

Look, whether the previous sample was profitable. In order to consider it as unprofitable, the price has to go against our potential position on at least 2 ATR:

In our case, it has not passed this distance, but the transaction is closed resulting in a loss. The reason was the intersection of the 10-day channel.

Therefore, we can take the reviewing signal.

• Let’s now take a look at the signal, which would give us the opportunity to enter a breakdown and get more profits:

The previous signal was unprofitable. We see a clear reversal, so we would be able to safely enter the market at the close of the candle:

Stop-loss would be set as an insurance. Currently, ATR is 47 points. Therefore, we would take about 100 points.

The deal could be continued to keep up ‘till the intersection of the maximum of 10-day channel:

The indicator thoughtfully marks us a red point, when it was worth to exit the market.

We would come out with a profit of 630 points:

That’s the kind of trend for which this strategy is intended.

• Now let’s consider entrances by the 55-day channel.

I recall that in the case of the 55-day breakdown we take all the deals, no matter if they were profitable in the past or not. And we get out of the deal in the breakdown of a 20-day channel.

Most convenient is to use two graphs in order to make it easier to navigate in the strategy.

The last entrance in our example was a bit later than 20-day channel:

Stop-loss is calculated similarly.

In this case, it amounted to about 92 points. It would be set on our chart:

We would quit the system in a large amount of time.

Let’s calculate the profit that we could get in the end:

Profit in this transaction would amount to 2300 points with a stop-loss of 100 points. That is, the profit would have been more than 23 times higher than stop!

You must admit that this is a very good deal. That is all the power of long-term trends.

Of course, the system will give a lot of false signals, but this is how it‘s intended.

In the book about the history of turtles, it is mentioned that the biggest amounts of money were earned on the trends 3-4 times a year. Simply put, 4 transactions brought the main income. Given that, they have traded on a variety of instruments.

Turtles’ Lessons

1) Trade with overweight. Find a strategy for bringing positive results in the long term, so that you have a long-term advantage.

2) Manage risk. Monitor risks for the continuation of trade, otherwise you will not have time to enjoy series of successful transactions.

3) Be consistent. Follow your plan to enter a transaction in order to achieve the purpose of the system – getting profit.

4) Do the simple things. Simple systems can easier withstand the test of time.

Table with trends since 2010

Turtle indicator author created an interesting table, where all the trends since 2010 after the breakdown of the 20-day channel are thought out. The end of the trend is considered to be a return to the opposite 10-day level. The calculations were performed on major currency pairs: EURUSD, GBPUSD, USDCHF, NZDUSD, USDJPY, USDCAD, AUDUSD, EURGBP, GOLD, and SILVER.

Attention! It’s just ALL the breakdowns of the 20-day channel that return later to the 10-day channel. They are not trading entries by the turtle system. Additional condition for entry according to the system 1 (the previous entry should be unprofitable), as well as the breakdown of the 55-day channel, is not taken into account.

The first table is downtrends, second - uptrends.

Legend to the table:
1) # - ordinal number;
2) Symbol - currency pair;
3) Open Price - the price of the beginning of a trend, Breakdown of the 20-day level;
4) Start Trend - the start time of the trend;
5) Close Price - closing price, rebound to the opposite 10-day level;
6) End Trend - closing time of the trend;
7) Day - duration of the trend in days;
8) Point - number of points from the entry price to the closing price;
9) Type - Down/Uptrend type - Descending/Ascending;
10) Total shows the total number of POINTS.

I advise using his information as an interesting material for your own research. Surely, you already have some ideas.

Download the table

Conclusion

Turtle Strategy clearly shows us that we shouldn’t ignore the long-term trends. And that you can make big money on them making a minimum of effort. I understand that intraday trading persistently attracts you by its instant results, but it is possible to combine two approaches: one account to trade in the long term and the other to carry out short-term trades.

Download “Turtle” strategy files

Take care, Michael

ForexTraderPortal.com