My Fascination With Turtles

[Daddybyday]

Hello, All,

I've been posting quite a bit about my decision to try to add some active trading to my retirement portfolios (see: https://www.trade2win.com/threads/s...erm-etf-trading-strategy.234833/#post-3092379). I've chosen a trading universe, and a plan for money management. Now, as I'm looking to learn about getting a full strategy worked out, there are a few that I've read in my time that have truly fascinated me. One is the pure momentum strategies employed by the "Turtle" Traders. I've found the rules in an open source document here: https://bigpicture.typepad.com/comments/files/turtlerules.pdf . I'm going to summarize the rules as far as entries and exits here, and I may paper trade it for a bit. I'll post any paper trades in the trade thread, so that I can get comments.

As I understand them, there are 2 strategies involved in the turtle, System 1 (Short term) and System 2 (Long-Term). Here are the rules for each (modified for my use, you can see the originals at the link above).

System 1 (Short-Term)

1) Buy on a 20-day breakout (As I'm only looking at charts in the evening, I'm modifying this to buying when the instrument closes above the 20-day high).
2) If the previous 20-day breakout would have resulted in a profitable trade, do not take the current signal.
3) Exit the position at a 10-day low. (I'll set my stop-losses at the 10-day low)

System 2 (Long-Term)

1) Buy on a 55-day breakout (As I'm only looking at charts in the evening, I'm modifying this to buying when the instrument closes above the 20-day high).
2) Exit the position at the 20-day low.

I look at these rules, and my first thought is, "That is WAY too simple!" I've been fascinated by this for some time, but have never taken the time to paper-trade or investigate it, so I'm going to do so on my trading Universe (see: https://www.trade2win.com/threads/c...universe-6-etfs-to-start.234835/#post-3092385).

Why I like this:

1) Simplicity--no indicators to keep track of!
2) Programmed stops and exits--mechanical nature.

What scares me.

1) Simplicity--something that simple surely can't work!
2) I've read that momentum strategies in general tend to have low win percentages--when you win you tend to win big, but you tend to lose a lot.

Has anyone traded this sort of strategy? How did it work for you? Please, let me know your experiences, and any resources you may have that would be helpful.

For now, I've found it intriguing, so I'm going to play with it a bit. I'll post my progress.

Thanks!

Tom

 

[tomorton]

Its good stuff Tom, but Turtle trading, all trend-following trading, isn't just following trends, it is also very importantly adding to winners. This is where real cojones come in and where the difference in outcome is varied from break-even to big win.

 

[Daddybyday]

Thank you for that feedback, Tomorton. Any suggestions on strategies to incorporate that? As I said, I'm exploring and learning. For example, with the turtle scenario above, where would you consider adding to the position?

Thanks!

 

[tomorton]

Well, there's basically three ways come to mind to do it -
add another equivalent trade when there's another entry signal - orthodox, conservative and unlikely to compound profits
add when unrealised profit reaches a set level - cautious and but manages risk very strictly
add when price has moved in your favour a specified distance - the Richard Dennis option, and he made millions out of it.

 

[Daddybyday]

Hey, Tomorton,

Do you have any sources where I can get more info about those options? e.g., options 2 and 3 seem to encourage to add to the position at set levels (either of unrealized profit, or after a specified move). How would a non-math person like myself set those levels?

The first seems like it is more easily understandable. If my trade is on a 55-day breakout, and it moves in my direction a bit, and then retraces, I'd buy more that the new 55-day breakout. Is this correct?

I'll look forward to your thoughts!

Tom

 

[tomorton]

Lot of traders use option 2 - if they're risking £X00 on the trade, derived from a pre-defined % of their account capital, often 2%, as soon as unrealised gain reaches +£X00 they add a second position with the same £X00 risk to its SL, and move the first trade's SL to break-even. So, at no time is more than £X00 of account capital at risk. But the rate of addition is slow. In practice, most strategies will see a serious weakening of trend after the first trade has reached b/e and the second trade has triggered but before the second trade has reached its b/e and the option to add a third trade can be taken. So you see a significant travel of price but a disappointing level of profit. But you don't lose money.

And not losing money is the principle that drives most teachers and writers in trading. They aren't concerned with their learners making money, they are more concerned with their learners not losing money. Conventional teaching tells us to take the entry and get out when it reaches 2r. At best, to add at 1r but then to get out at the equivalent to 2r. Nobody got rich doing these things, and most traders eventually go broke trying. But the thing is it takes a long time to go broke by trend-following so the teachers can walk away without appearing to be teaching get-rich-quick strategies and without fear of blame or come-back from angry clients.

I would only be able to say, if you want to make money like the Turtles did, add like they did. They added at every 0.5N until they reached their capital limit per market. Its proper scarey.

 

[Daddybyday]

Thank you, Tomorton.

I know that I missed a lot of the adding from the paper, because frankly, I'm not sure how to do the math. It leans a lot on the ATR, and the Fidelity chart doesn't even offer an ATR indicator. That is my homework for this week, studying and figuring out how they did the additions. I was just reading the calculations of N, and I confess, my eyes glazed over. Do you know if there are spreadsheets that calculate it, or have a source for calculating N for a particular position?

Thanks!

 

[tomorton]

N is basically ATR20. I've got ATR on my firm's charts so I've never had to research finding it from another source I'm afraid. But ATR20 would not be hard to calculate manually, especially easy if you can download the last 20 closing prices into an Excel and ask it to average them.

 

[Daddybyday]

Got it! I'll give that a shot!

 

[0007]

If you haven't read Curtis Faith's book about the Turtles(Way of the Turtle) I would recommend to do so. He was one of the Turtles and I seem to remember (from reading it long time ago now) that he goes deeply into the psychological aspects of the Turtles system and emphasises that although very simple, one of its greatest difficulties was that the traders wouldn't always stick to the rules thus negating profitability. I also seem to remember reading somewhere else that although the strategy was appropriate then, it may not be so today – but that's only what I've read: I've never practised the system myself.

 

[trendie]

Good luck with this.
Curtis Faith book, as described by 0007 is a good read.

Looking forward to reading your journey on this.

 

[NVP]

the thing about the turtles approach is big cajones needed for piling on the trades when needed .....but equally those brutal drawdowns they had at times

i believe many turtle traders eventually left or strayed as they burnt out on those plays

good luck though......will be interesting

N

 

[Daddybyday]

I don't see why the cajones are needed when you're adding to a position that is running in your favor. Aren't you "playing with house money" at that point? It seems to me that the real nervous time would be early in the trade, when you have the most to lose. Am I wrong? Please, steer me right! ;-)

Thanks!

Tom

P.S. Check out my new trade thread. I did decide to take an IVV trade today, but for a totally different reason. I'd love to see your comments.

 

[tomorton]

That's right in principle Tom, all (or most) of the new risk in any new trade is financed by the unrealised gain in the previous trade.

But two issues come to play on your mind and they just grow as the position does. Firstly, new entries are being added when the TA actually would not be telling you to get in here at all: using an aggressive strategy, the pyramid trades are added simply because price reached a given point on what is in TA terms a random scale. Also, pretty quickly as you add positions to the original trade, the amount of unrealised gain can become such a large amount that there is real mental pressure to close and bank as much as possible before a pull-back: at this point, even a minor pull-back can take a lot of money off the table (even if not out of your original account capital).

 

[Daddybyday]

Got it, thank you, Tom!