I’ve found great success in implementing the turtle trading strategy. To start things off, Richard Dennis and William Eckhardt developed this revolutionary approach in the 1980s. These two legendary traders decided to conduct an experiment to determine if trading skill could be taught. They selected a group of individuals from various backgrounds, provided them with a set of rules, and within a few years, their group—often referred to as the "Turtles"—achieved phenomenal success. This story always fascinated me, and I was eager to try it out for myself.
Let's get real. When adopting this strategy, your first step involves setting up specific entry and exit rules. A classic rule includes entering a trade when an asset’s price exceeds its 20-day high with a position size calculated using the risk of 2% of your trading account. For instance, if you have a $50,000 trading account, taking a 2% risk per trade equals risking $1,000 per position. This kind of risk management is crucial in ensuring you can weather losses without wiping out your account.
For a practical example, in 2020, I spotted a potential breakout with Apple Inc. The stock had breached its 20-day high at $150. Utilizing the turtle trading principles, I calculated my position size and decided to invest $10,000, only risking 2%. Within three months, the stock climbed to $200, making a clean 33% profit on that trade. Such stories highlight how powerful this method can be if followed rigorously.
Next up is the time frame. Turtle rules typically use either 20-day or 55-day periods to determine buying or selling points. Many traders wonder why these specific time frames work so well. Historically, these numbers have proven effective for capturing significant market trends without getting caught in short-term noise. This is evident in the consistent returns witnessed by the original “Turtles.” Over a four-year period, the group returned an average of 80% annually. Yes, you read that right—a mind-blowing 80%.
Incorporating the turtle strategy also involves proportionate exits. Determine your exit point by considering the asset’s volatility, often measured as the average true range (ATR). If you’re in a bull market, you might set your stop-loss at two times the ATR below the entry price. This allows for some breathing room, letting the uptrend play out while protecting you from unexpected downturns. Real-world application of this principle helped me cut my losses in 2021, just before my positions could plunge dramatically. Avoiding significant losses is just as crucial as capturing big profits.
Don't think large volumes of trades mean massive profits. The turtles consistently emphasized quality over quantity in their trades. For example, Dennis and Eckhardt reported that their portfolio often comprised just 12 to 15 different positions at any given time. Diversification also played a key role. I diversify my investment across commodities, currencies, and equities based on these principles, ensuring that not all my capital is subjected to a single market’s risk.
Another noteworthy aspect involves slippage and commissions, often an overlooked factor. In today's digital era, trading fees are remarkably low. Yet, slippage can still affect profitability, even more so in volatile markets. To mitigate this, I employ limit orders instead of market orders whenever possible, ensuring I get the exact price I aim for. One can’t stress enough the importance of this aspect—cumulative tiny losses due to slippage and commissions can eat into your profits substantially.
You might find yourself asking, “Does this strategy work in today’s high-frequency trading climate?” Absolutely. The essence of the approach—capitalizing on trends—remains valid. In fact, AI-driven analysis of market trends shows that the average time a single trend lasts has shrunk to around 14 days, down from 20 days a decade ago. This only means you need to adopt a disciplined approach and perhaps slightly tweak the rules to align with modern trading environments.
Implementing a stringent screening criterion for trade setups has benefited me enormously. I focus predominantly on liquid assets with a daily trading volume exceeding a million shares. High liquidity minimizes slippage and ensures you can enter and exit trades at favorable prices. Applying this to the forex market, I've seen that currency pairs like EUR/USD and GBP/USD consistently offer the best trading conditions.
In conclusion, living by the rules of the turtle trading method can yield incredible returns if followed diligently. It involves a mix of precise risk management, careful selection of high-probability trades, and a bit of courage to ride the inevitable market volatility. The turtle trading strategy, born of an experiment, turned out to be a timeless gem for many traders out there.
For an in-depth understanding straight from the source, the Turtle Trading Strategy can offer more detailed insights and guidelines.
This legendary approach continues to inspire traders old and new, helping them navigate through market uncertainties and achieve stellar returns.