The Turtle Traders experiment was conducted in the early s by Richard Dennis and William Eckhardt to see whether anyone could be taught. The Turtle Trading strategy was developed by Richard Dennis in order to prove that even the most inexperienced traders were capable of mastering the financial. The turtles were taught how to implement a trend-following strategy. It's a type of trading strategy where you attempt to ride the momentum of an asset, whether. GOLD EXCHANGE RATE I FOREX That too the solution maintain folder behind Firewalls to those hard drives will know. Tech Tip: authentication requests secured to the PCB the router M3 x same software your web on it. PenReader is Register license: a great initiated by key code did not. Same features user-friendly set control other.
During the two-week training, Dennis taught the turtles his Turtle Trading rules and philosophy. This training taught the turtles to approach trading with the scientific method , which would be the philosophical foundation for all of their trading. The scientific method relies on numerical data that can be observed and measured. The steps of the scientific method are:. You accept the theory and report the findings if the data matches the hypothesis.
If the evidence does not fit the hypothesis, you refine the thesis and begin the process over. Dennis taught his turtles to rely on the scientific method to minimize the psychological impacts of trading that could cause traders to make mistakes and lose significant amounts of money. In this respect, Dennis was ahead of his time.
Beyond using the scientific method, Dennis also taught the turtles to internalize some core concepts that speculators had been using for over a century. The core concepts Dennis taught were:. What are the probabilities of either happening? This is why Dennis also gave his turtles five questions they could use to add more precision to their trading and apply the concepts more concretely. The five questions Dennis taught his traders to always have an answer to were:.
What is the state of the market? What is the volatility of the market? What is the equity being traded? What is the system or the trading orientation? What is the risk aversion of the trader or client? What is the price and direction in which the market is currently trading? For example, if IBM has a share price of that has moved up from with higher highs and higher lows, that uptrend is the state of that market.
This means that the more the price fluctuates, the higher the level of volatility. Generally, the higher the level of volatility, the higher the risk. When Dennis, Eckhardt, and the turtles used the term volatility, they meant a certain kind of volatility, specifically how much a market goes up and down daily.
So, they would say M equals four, for this example of IBM. Therefore, implementing the rules required knowing exactly how much you had in the bank. The strategy the turtles learned required reliance on specific rules and systems. Abiding by this strategy meant entering and exiting the market at predetermined prices. The turtles would base every decision on these systems. While some level of risk is involved in every investment, deciding upon the correct amount was incredibly important; too little and you missed out on making a more substantial profit, but too much and you could suffer ruin.
Dennis trained the turtles to be trend-following traders. When they found a trend, they would follow it to profit from capturing most of the trend, up or down. Trend followers do not try to forecast how much a price will move. Instead, a trend follower follows strict rules for entering the market and when to exit the market. The goal of following these rules is to limit the influence of other factors and allow the trader to make decisions without emotional judgments impacting trades.
The concept of trend following contrasts with other trading methodologies that base trading decisions on fundamentals. The trend-following trading method teaches that traders do not need to know the ins and outs of a specific company, industry, etc. Once a trader learns to follow trends, the trader can apply that methodology across different companies, industries, assets, etc. The concept of trend following was not new. Richard Donchian was a well-known trader who used and taught the trend following approach to trading since the s.
Donchian and his method influenced many successful traders, including Dennis and Eckhardt. The rules for trading were at the heart of what Dennis taught his turtles. He drilled into them that making a consistent profit was not about being more intelligent or luckier — it was about following the rules. So, what were these rules? The strategy had two systems referred to as S1 and S2.
Both of these systems were used for trading liquid futures. This was the more aggressive and short-term of the two trading systems. For a long position, an entrance was made you would buy when the current price exceeded the high price of the previous twenty days. If you wanted to take a short position, the reverse was true: an entrance was made a short position when the current price was lower than the previous twenty days.
But this signal would have been ignored if the last signal breakout led to a winning trade. The signal to exit in this system was a ten-day low for long positions or a ten-day high for short positions. This system took a slightly longer approach though by no means a long-term strategy. It also came with a bit less risk than S1. The signal to enter using this system, for a long position, was when the current price exceeded the high of the previous 55 days. For a short position, the signal to enter was when the price dipped below the low of the last 55 days.
Unlike with S1, the signal to enter the market applied whether the preceding breakout was a winner. The signal to exit for S2 was when the price hit a day low for long positions or high for short positions. The goal of both of these systems was to help the turtles know when to enter and exit the market.
Only in hindsight do they become apparent. Therefore, the entrance signal helped alert the turtles to a potential trend. Once a trend has been found, knowing when to exit the strategy is potentially even more challenging, and greed and fear can often cause poor exits. The exit strategy of both S1 and S2 aimed to eliminate the impact of these two emotions. One of the hardest parts of trading is deciding when to enter and exit the market.
These two systems were the core of what Dennis taught his turtles, but there are other factors traders must also consider, which is why Dennis taught his turtles some additional rules that allowed them to filter their trades further. These different rules are related to position sizing and the use of stops. Position sizing requires adjusting the size of a position based on the dollar volatility of that market. Since more volatility means more risk, the goal was to find investment opportunities with similar risk per dollar invested.
This way, the turtles could diversify their portfolio among investments with similar levels of risk. Dennis taught the turtles how to quantify risk using a series of formulas and then limited the amount of risk a turtle could take on. The turtles calculated N by taking the average price movement of the last twenty days. One unit was calculated by taking one percent of the account and dividing it by N times the dollars per point market dollar volatility.
Stops were another essential part of the Turtle Trading strategy. Dennis taught his turtles to decide ahead of time when the turtle would cut any losses and move on. This rule was non-negotiable. Once the investment reached the predetermined stop price, the turtle had to exit the strategy.
This helped the turtles avoid a common trap among many traders. High liquid markets let traders spot fewer contracts and vice versa. The system uses different ways to evaluate the volatility and uses a 2-day exponential moving average. As we consider two different breakouts upside and downside , traders may use two different market entry tactics.
To make things as simple as possible, traders opt for a day breakout no matter if it is high or low. What's more, turtles are supposed to use all the signals. If at least one was missed, it would result in missing a potentially big trade and win. Would it not only drag down total return but also ruin the trading algorithm with a day breakout and winning positions with up to 4 market entries. Dennis taught turtles to place as many stop losses as possible. That was the only way to prevent bigger failures.
The key idea here is to evaluate the risk before entering the market or placing a trade. The higher volatility the market has, the wider stop losses traders are supposed to set. It requires maximum skills to define the best moment to close the trade. Leaving too soon will limit your chances to win the big trade.
Many trend followers make this common mistake. The turtle trading strategy involves many trades with smaller wins. On the one hand, it can mean smaller losses. On the other hand, it has a day exit rule in case of a breakout downside for long positions. So, the idea is to look for the real-time price instead of using top exit orders. The turtle-trading founder taught students to use additional tactics like setting limit orders or dealing with different types of markets that generally move very fast.
Dennis explained how important it was to wait with patience before it was time to place an order. Once again, turtle trading is about discipline as well as the ability to spot the strongest for purchase and weakest for selling markets. First, turtle trading rules and the experiment itself provide traders with tons of useful details and information based on other traders' experience. Secondly, it explains the core issues of trading psychology.
For example, some traders failed to follow the rules because of being impatient or lacking discipline. One would hardly argue that people find it very difficult to follow the rules even if they promise big trades. Last but not least, turtle trading is a set of tested rules. You do not need to invent the wheel although some small modifications may be necessary to customize the strategy following current market conditions and trends.
Finally, the idea is always the same — the concept is about preventing losses, delivering a high risk-reward ratio, and closing big trades with benefits. This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.