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The Original Turtle Trading Rules. Background. Richard Dennis, set up a group of 13 people and tranned them about trading stock market (year 1989). Two months later after done with tranning, Dennis funded each of people with $500,000 to $2,000,000. Background.
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Background • Richard Dennis, set up a group of 13 people and tranned them about trading stock market (year 1989). • Two months later after done with tranning, Dennis funded each of people with $500,000 to $2,000,000
Background Over next four years, they earned an average annual compound rate of return of 80%
1. A Complete Trading System • System provides answer for trading • System follows a set of rules • No human emotion involves in trading Buy Buy Sell
2. Know what to buy and sell • The Turtles traded all liquid U.S markets except the grains (small contracts)and the meats(a corruption problem). Industries Aerospace & Defense Chemicals Exchange Traded Funds Oil, Gas & Energy Agriculture, Paper &Packaging Clean Tech Food Manufacturing & Products Publishing& Media Automotive Closed End Funds & Investment Companies Healthcare & Pharmaceutical Real Estate Banks, Financial Services & Insurance Computers, Technology & Internet Industrial & Manufacturing Telecommunications Biotechnology Consumer & Retail Products Leisure & Entertainment Transportation Building & Construction Distr. Unit Trusts & Funds Metals & Mining Utilities Business & Support Services Electronics & Engineering
3. Position Sizing True Range = Maximum(H-L,H-PDC,PDC-L) where H - Current High L - Current Low PDC - Previous Day's Close N = (19 X PDN + TR)/20 where PDN - Previous Day's N TR - Current Day's True Range Dollar Volatility Adjustment Dollar Volatility = N * Dollars per Point Unit Size = 1% of Account / Market Dollar Volatility
3. Position Sizing http://www.turtletrades.com/calculate-N.php?thesymbol=MSFT
3. Position Sizing Level Type Maximum Unit 1 Single Market 4 Units • Closely Correlated Market 6 Units • Loosely Correlated Market 10 Units • Single Direction - Long or Short 12 Units Single Market Closely Correlated Market -- heating oil and crude oil; gold and silver Loosely Correlated Market -- gold and copper ; silver and copper Single Direction
3. Position Sizing • Adjusting Trading Size The Turtle were instructed to decreased the size of account by 20% if we went down 10% Trading $1,000,000 -> account went down (10%) $100,000 = left $900,000 Next Trading we have $800,000 -> account went down (10%) $80,000 = left 720,000 Next Trading we have $640,000
4. Entries System 1 - A short term system based on a 20-day breakout. System 2 - A simpler long-term system based on a 55- days breakout. System 1 Entry Price > average 20-day high = buy one unit (long position) Price < average 20-day low = sell one unit (short position) System 2 Entry Price > average 55-day high = buy one unit (long position) Price < average 55-day low = sell one unit (short position)
5. Stops "There are old traders; and there are bold traders; but there are no old bold traders" Traders that don't use stops go broke. Since N = 1% of Account Equity , So the maximum stop would be 2% (2N) For Example Crude Oil N = 1.20 55 days breakout = 28.30 Entry Price Stop First Unit 28.30 27.70 Second Unit 28.90 27.70 Third Unit 29.50 27.70
5. Stops N = 1.20 55 days breakout = 28.30 Entry Price Stop First Unit 28.30 27.70 Second Unit 28.90 27.70 Third Unit 29.50 28.90 Fourth Unit 30.10 29.50
6. Exits The system 1 exit = 10 days low/high for long positions The system 2 exit = 20 days low/high for long positions “Waiting for a 10 or 20 days new low can often mean watching 20%, 40% even 100% of significant profits evaporate”
7. Tactics • limit orders is better than market orders-offer a chance for better fills and less slippage • bid price > ask price = trading Fast Market • A market can move thousands of dollars per contract in a few minutes - do not panic and wait for the market to trade Simultaneous Entry Signals • If a market occurs the stretch of a few hours , take the trade as they came. Buy Strength and Sell Weakness • use Visual examination
