Turtle Method / Turtle Strategy
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History of the turtle strategy/method
The turtle method was created by Richard Dennis and William Eckhard in the last century. At the origin of this strategy, these two men sought to find out if everyone could become good traders, or if good traders had a kind of intrinsic gift. They then decided to hire 13 traders and teach them the turtle method. Each trader had a trading account of several thousand dollars (from $500,000 to $2,000,000).
After 4 years of applying the turtle method, traders showed excellent performance (up to +80%).
The apprentice traders were called "the Turtles". On 5th September 1989, in the Wall Street Journal, Stanley W. Angrist used a quote from Dennis (who had just returned from Asia): "We are going to grow traders just like they grow turtles in Singapore".
General information on the turtle strategy/method
The turtle method seems simple at first sight. It brought together all aspects of a trading plan, from placing stop orders to position entry parameters.
The trader had instructions that he had to follow mechanically. If the trader did not strictly follow all instructions, then the turtle strategy was no longer effective.
Details about the turtle strategy/method
Which market was traded with the turtle strategy?
The turtle strategy was exclusively aimed at trading futures, foreign exchange (Forex), and commodities. The market on which the turtle strategy was applied had to be volatile, as the "turtles" took very large positions, and these positions had to not influence the price of the products traded (which could have caused losses).
To increase the number of detectable signals, the markets used were very diversified, and the capital was spread over a lot of assets. This portfolio diversification also reduced the risk of loss.
Size of the positions in the turtle strategy
In the turtle strategy, the size of positions was calculated very precisely. The turtles had an indicator that allowed them to reduce or increase the size of positions according to the volatility of different assets traded. With the turtle strategy, the lower the volatility, the smaller the position size; conversely, the lower the volatility, the larger the position size.
The management of position sizes in the turtle strategy increased the risk of illiquid assets, and thus increased their performance. Conversely, the management of position sizes in the turtles’ strategy minimized the risk of highly volatile assets, and thus reduced their performance.
The management of position sizes made it possible in a way to put the various assets on an equal footing.
The turtles’ strategy for entering a position
The turtles’ strategy was quite basic. Entries were made during breaks/breakouts. Positions could be opened in two different ways:
1/ At the break of the lowest or highest over a period of 20 days.
2/ At the break of the lowest or highest over a period of 55 days.
Stop loss and take profit orders in the turtle strategy
In the turtle strategy, losses were cut very quickly (unlike profits); In general, one profit covered a number of losses.
The “turtles" did not place stop orders (for fear of their strategy being discovered). They preferred to monitor markets live and exit manually.
The risk per trade with the turtle strategy never exceeded more than 2% of the capital.
For a take profit, “turtles" usually placed limit orders to avoid the risk of slippage (in the event of high volatility) or non-execution at the right price of a market order.
My opinion on turtle strategy/method
The turtle strategy/method largely proved itself in the past. It is today one of the most famous stories in the trading world. However, markets have evolved. Today, expert advisers can simplify certain "automated" procedures. We all have a direct counterpart at all brokers; We do not necessarily all have an account with such high capital.
What to remember about the turtle strategy/method
I think it is important to retain rigour (which we also stressed a lot in our book "One-way trading") and a maximum risk per trade (2%); I did not talk about pyramid trading which was applied in the turtles’ strategy, but that is also a good method to apply (still, you need to know how to do it, which is not always obvious with some corrections in the traded asset).
