Strategy Turtles - classic trading of the "old school"
A legendary strategy that has brought millions of dollars to traders around the world. The famous experiment, which showed that anyone can trade on the exchange if he complies with the rules of the system. The philosophy of trading, having understood which, you will discover new facets of making profit on Forex. The classical system of “turtles”, despite its age, brings many lessons, allowing you to look into the very essence of price movements and big trends.
Characteristics of the Turtle Trading System
Currency pairs: EURUSD, USDRUB, AUDUSD, USDCAD, NZDUSD, USDSGD, EURGBP, Gold, stocks, commodities, indices
Trading time: around the clock
Recommended DC: Alpari, Roboforex
- Curtis Feis Book “The Way of the Turtles. From amateurs to legendary traders ":
- Download the electronic version
- Book of Michael Kovel "Turtles-Traders"
- Setting indicators in MT4
- Setting strategies
Many years ago, two traders Richard Dennis and William Eckhard argued: can a simple person be trained in trading if he is taught his trading system and encouraged to follow its rules in a disciplined manner.
Richard Dennis said that it is possible, and William Eckhard believed that it is impossible. He thought that you need to have a certain sixth sense or intuition to work on the stock exchange. Simply put, have talent.
The result of their argument was an experiment. Richard Dennis posted an ad and recruited people from the street to train his trading system. At the end of the training, he allocated the best students certain amounts for trading. And what would you think happened? Without his close supervision, some of the students earned millions, but at the same time someone from his group, on the contrary, lost them. The market was the same. They traded at the same time. The rules for each of them were the same.
This experiment shows that the success of trade depends not so much on the system as on the person himself.
It doesn’t matter how much you know. If you do not know how to put this into practice, then you are not as smart as you might think.
Today we will analyze what kind of system it was that Richard Dennis taught his students and try to understand why some of the traders lost money and some earned.
- Azzx_donchian (Donchian Canals)
Builds channels at highs and lows for a given number of days.
In the case of a period of 20 days, the last 20 candles are taken into account. The highest and lowest prices are noted. Similarly occurs with a period of 55 days. There is nothing complicated here. You can easily build the channel yourself in pencil on paper. The indicator is set on the chart three times with periods of 55 days, 20 days and 10 days.
- TheClassicTurtleTrader (Turtle)
You can find breakdowns yourself, but it will be faster and easier to use auxiliary indicators.
TheClassicTurtleTrader shows breakouts with red and blue dots, displays inputs and outputs with arrows.
It is set on the chart twice. One with a period of 20 and stop - a period of 10. The second with a period of 55 and stop - a period of 20.
There are enough indicators for successful classic trading "Donchian Canals" and «The Classic Turtle Trader».
Let's add an indicator to the chart to see everything clearly:
We see that the indicator points also serve as signals when the channel continues to increase or decrease over the past n-days.
It paints over the areas of 10, 20, 55 daily breakdown and displays the input with arrows and the output with checkmarks.
Draws a candlestick that displays a medium-long-term trend.
In this example, this is not a very strong trend down.
Default settings. If desired, you can change the display settings of the 55-day channel and color.
Standard indicator in the terminal.
Set with a period of 20.
Two types of trading are based on the breakdown of the Donchian channel. Transactions are opened as soon as the price breaks through the channel. You can not wait for the candle to close.
Shorter term entry:
- The price breaks through the 20-day Donchian channel.
- The deal on the previous signal, no matter we entered or not, closed at a loss.
If the previous deal closed profitably, we skip entry. If it suddenly turns out that the breakdown is profitable, then later we go to it after breaking through the 55-day channel.
In the picture you can see the daily chart of EUR / USD.
Green lines reflect the border of the Donchian canal with a period of 20, that is, 20 days.
When the price breaks through this channel, we enter the deal.
Longer Term Entry:
- The price breaks through the 55-day Donchian channel.
Interestingly, we do not use the filter for the previous transaction, we always enter.
For Forex, there is a simplified form of calculation for turtles. It looks like this:
ATR (20) * 2
An interesting fact, but then the turtles did not place stop orders in the market, as they traded in rather large positions. Thus, they did not want to show this to the broker. Instead of placing an order, they monitored the price during the day and organized an exit as soon as it reached the breakout level.
At the same time, it was important that the loss does not exceed certain values associated with current market volatility. Stop Losses were virtual.
But we do not trade billions, so we need to place real stop-loss orders.
In order to work with the formula for calculating stop loss, you should add the ATR indicator to the chart:
In the last deal, the stop loss would be 280 points:
The reason for the big numbers is that these are daily charts.
This stop loss is set solely for the purpose of insurance, since the exits occur according to the rules described below, and accordingly, stop loss is extremely rare.
It is installed in order to protect itself from unpleasant situations with any sharp price movements during the day.
As you know, if there is an entrance, then there must be an exit.
- For a transaction opened by breaking through a 20-day channel, exit occurs when breaking through the opposite 10-day channel.
- For a transaction opened by breaking through a 55-day channel, exit occurs when breaking through the opposite 20-day channel.
- In the first case, the turtles came out during the breakdown of the 10-day channel. On the graph, it is marked with red borders:
The auxiliary indicator clearly shows the exit point.
When crossing through a minimum of a 10-day channel, we have this point:
If you hover over it, the indicator’s name, time and an annotation about exit from long positions will appear.
- And in the case of the 55-day channel, the exit was carried out by breaking through the 20-day channel.
Let's open a sale deal and look at it again.
On the chart, you can see the breakdown for the 55-day chart:
At the highlighted point was a breakdown of the 20-day channel up. Here we would exit the deal:
This is how exit from these positions occurs. It is important to carefully monitor the performance and with signals to enter and exit positions.
Installed approximately at a distance every 0,5 ATR from the entry point
We could enter the market somewhere at this level. ATR would be 140 pips. Half of them are 70:
After 70 points, we would place another entry order in the same direction. After 70 another one and after 70 points another one.
Top-up orders would be placed this way every 70 points:
If ATR were different, then topping-up would be carried out in equal shares of its half.
Now let's talk about money management.
- Risk per trade no more than 1%
- When using top-up orders, the risk per trade is 0.25%
I want to say right away that turtles never risked more than 1% of the deposit per transaction. If you want to use top-up orders, then you should use approximately 0.25% of the deposit risk in each transaction.
As for stop losses of top-up orders, they are calculated in the same way as described above. Upon reaching each top-up order, the stop loss of the general position is transferred to a level higher or lower. Simply put, it shifts a bit.
I will probably see comments on the topic of low risk per trade, but turtles traded in a large number of markets and instruments. This precaution was in order to remain in the game in case of losses on certain positions. This is the main task of money management - to allow us to stay in the game with a large series of unsuccessful transactions.
Now let's look at a few examples of market entry.
- With the penultimate entrance at the intersection of the 20-day channel, everything will be simple
The position here closed with about a small profit of 15 points:
A position opened upon breaking through a 55-day channel would close at a safety stop-loss:
Please note that we would have missed the entrance to the purchases at the last maximum after breaking through the 20-day channel, because the previous breakdown of the 20-day channel made a profit.
- Let’s see if we could enter a deal using another breakdown as an example.
Potentially it is profitable:
We look, whether the previous breakdown was profitable. In order for it to be considered unprofitable, the price must go at least 2 ATR against our potential position:
In our case, she did not pass this distance, but at the same time the deal was closed at a loss. The reason was the intersection of the 10 day channel.
Therefore, we can take the signal in question.
- Let's now look at a signal that would give us the opportunity to enter the breakdown and get more profit:
The previous signal was unprofitable. We see a clear reversal, so we could confidently enter the market at the close of the candle:
Stop loss would be set as safety. At the moment, ATR is 47 points. Therefore, we would take about 100 points.
The deal could be continued until the maximum of 10 day channel crosses:
The indicator carefully displays a red dot, the moment when it was worth leaving the market.
We would come out with a profit of 630 points:
It is precisely on the taking of such trends that the strategy is designed.
- Now let's look at the inputs on the 55-day channel.
I remind you that in the case of a 55-day breakdown, we take all the deals, whether it was important whether they were profitable or not in the past. And we exit the deal when a 20-day channel is broken.
It is most convenient to use 2 graphics in order to make it easier to navigate the strategy.
The last entry in our example occurred a little later than the 20-day one:
Stop loss is calculated in the same way.
In this case, it amounted to approximately 92 points. It would be displayed on our chart:
We would log out of the system in a lot of time.
Let's calculate the profit that we could get as a result:
Profit in this transaction would be 2,300 points with a stop loss of 100 points. That is, the profit would be 23 times more than the stop!
Agree that this is a very good deal. This is the power of long-term trends.
Of course, there will be a lot of false signals in the system, but that's what was intended.
The book on the history of turtles mentions that they made the most money on trends 3-4 times a year. Simply put, 4 transactions brought the main income. Despite the fact that they traded on many instruments.
Lessons from turtles
1) Trade by margin. Find a strategy that brings positive results in the long run so that you have a long-term advantage.
2) Manage risk. Control the risks to continue trading, otherwise you will not have time to enjoy the succession of successful transactions.
3) Be consistent. Follow your plan to enter the deal to achieve the goal of the system - making a profit.
4) Do simple things. Simple systems stand the test of time more easily.
Table with trends since 2010
The author of the Turtle indicator compiled an interesting table where all the trends from 2010 after the breakdown of the 20-day channel were calculated. The end of the trend is considered a return to the opposite 10-day level. The calculations were carried out for the main currency pairs: EURUSD, GBPUSD, USDCHF, NZDUSD, USDJPY, USDCAD, AUDUSD, EURGBP, GOLD and SILVER.
Attention ! This is just ALL breakdowns of the 20-day channel with the completion of a return to the 10-day channel. These are not turtles. Add. the condition for entering system 1 (so that the previous entry was unprofitable), as well as the breakdown of the 55-day channel, were not taken into account.
The first table is the trends down, the second - the trends up.
Legend to the table:
1) # - number in order;
2) Symbol - a currency pair;
3) Open Price - the price of the beginning of the trend, Breakdown of a 20-day level;
4) Start Trend - start time of the trend;
5) Close Price - closing price, rebound to the opposite 10-day level;
6) End Trend - trend closing time;
7) Day - the duration of the trend in days;
8) Point - the number of points from the entry price to the closing price;
9) Type - trend type Down / Up - Down / Growing;
10) Total shows the total amount of ITEMS.
I advise you to use this information as an interesting material for your own research. Surely you already have a couple of ideas.
The turtles strategy clearly shows us that long-term trends cannot be ignored. And that they can make big money by spending a minimum of effort. I perfectly understand that intraday trading stubbornly attracts you with the expectation of instant results, but you can combine 2 approaches: on one account, trade in the long term, and on the other, carry out shorter-term trades.
Theme of the strategy on the forum
Turtle indicator branch