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Turtle Trading How Slow and Steady Wins the Trading Game

05 Sep 2023

Introduction

Even if you are a non-trader, you can learn to trade for big profits by sticking to a set of proven rules. Want to learn the famous trend-following Turtle trading strategies? We have got you covered. Let’s learn to ‘turtle’ trade.    

What is the History of the Experiment? 

Commodity trading legends Richard Dennis and William Eckhardt conducted the successful Turtle Trading Experiment in the 1980s. The experiment involved teaching novices how to trade futures. The approach was to buy breakouts and sell immediately during a downturn. 

Dennis selected a group of 14 people to teach his rules and called them turtles after the turtle farms he visited in Singapore. He trained the people for two weeks and gave his own money to the successful ones to trade. 

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The experiment was highly successful. The class Dennis trained personally earned over $175 million in 5 years. Russell Sands, a former turtle, contended that the system worked well even today. 

What were the Turtle Trading Strategies Suggested by Dennis? 

Dennis’ approach was purely mechanical. He gave a set of rules to his students to help them eliminate emotions while they traded. Here’s a list of the principles Dennis suggested to his turtles to benefit from the sustained momentum in the market.  

1. Trading Liquid Markets 

Traders should trade futures contracts in highly liquid markets, such as commodities, metals, energy, and currencies. A liquid market would allow traders to enter trades without the market moving. 

2. Adjusting the Trade Size Based on Volatility 

Dennis suggested that turtles should use a position-sizing algorithm. Under this algorithm, the trade size is adjusted based on the dollar volatility in the market. This rule meant that every position the turtles entered was the same. 

3. Market Entry Rule 

This rule had the turtles using two different entry systems. The first system used was a 20-day breakout, and the second was a 55-day breakout. The traders ensured they took all available signals to avoid missing out on a trading opportunity.   

4.  Using Stop Loss Always

Dennis advised his students to use a stop loss at all times and ensure that no loss was ever too big. The turtles had to determine the stop loss before entering a position.  

5. Market Exit Rule

Turtles were taught never to exit a position early as it could limit profits. They were advised to enter many trades as only a few would win them big bucks. 

Conclusion

Turtle trading is a great lesson on how sticking to a set of rules and not gut feeling alone can help traders achieve profits. However, this trend following has a downside, as not all breakouts tend to be true. Turtle trading, therefore, should be practised with caution.   

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