This page provides a brief overview of the original Turtles trading system, and how to use it with the Turtle Signals service.

What is the Turtle Trading System?

Brief Introduction

The Turtle Trading system was by Richard Dennis and William Eckhardt, both commodity traders, in the early 1980s. Dennis was well known for converting an initial stake of $5,000 into $100 Million. They believed trading could be taught, and set out to hire a small group of novices to teach how to trade. These hires were known as “Turtles”. The experiment proved to be a success, with the Turtles generating over $175 Million in just five years.

The System

The Turtle Trading system is relatively simple, though requires strict position sizing and risk management to ensure profitability. The most successful Turtles were the ones who adhered to the risk management principles set out by Dennis and Eckhart.

Markets

The Turtles traded liquid futures markets including the 30 Year US Treasury Bond, 10 Year US Treasury Note, 90 Day US Treasury Bill, commodities such as grains, coffee, cocoa, etc., foreign exchange, the S&P 500 index, precious metals, and oil and gas.

The Turtles were given the option to not trade some of the markets, but this had to be consistent. They weren’t allowed to be in and out of a particular market. They either traded all the signals for that market, or none of them.

Position Sizing

The Turtles used a volatility based position sizing system which today is used by most traders. They used the concept of an “N” value, which today is more commonly known as the ATR (Average True Range). The N value is used to help calculate the position size.

Position sizes were calculated in what the Turtles called “Units”. Units were sized such that each represented 1% of an account’s equity. The N value then represents the “spread”, or dollar amount, on a chart that represents 1% of account equity or risk. The formula for calculating the unit size is:

Units would be rounded down to the nearest whole Unit.

Maximum Units

To further minimize risk, the Turtles were limited to the number of units based on the markets.

• For any single market, the maximum position was 4 Units.
• For correlated markets, the maximum position in any single direction was 6 Units.
• For loosely correlated markets, the maximum position in any single direction was 10 Units.
• For any single direction, Long or Short, the maximum position was 12 Units.

New Position Signals

Essentially, the system looks for breakouts of the 20-day and 55-day highs and lows. The 20-day breakout is known as System 1, and the 55-day breakout is known as System 2. When price trades just one tick above/below the 20 or 55 day high/low, a long/short position is entered. Entering positions is done immediately at the time of breakout, and not waiting for the daily close or the opening of the next trading session.

Turtles were allowed to trade System 1 or System 2, or a combination of both. In other words, they could allocate 100% of their capital to System 1 or System 2, or some other split, such as 50/50, 25/75, etc. In all cases, Turtles were instructed to open positions for all breakout signals, as long as they weren’t maxed out on their “Maximum Units” for a particular market or direction.

All new positions were sized at 1 Unit and added to as the trend continued.

System 1 Specifics

In System 1, not all breakouts are traded. If a previous breakout of a particular commodity would have resulted in a winning trade (regardless of wether a position was entered or not), then the next breakout for that commodity would not be taken, i.e. in this case the breakout signal is ignored. A position is only entered for System 1 if a hypothetical trade on the previous breakout signal was a loss.

In a case where a breakout signal is ignored as described above, and if price continues to trend in the same direction as the ignored breakout signal, then a position will be entered into with a 55-day breakout. This is a System 1 Failsafe Breakout position to help avoid missing out on major market moves.

Adding to positions

For any position, the Turtles would add 1 Unit for every ½ N in price movement from their actual entry price, up to the maximum allowed units for that market or direction. This accounts for order slippage between the breakout/trigger price and the actual filled price.

Close Position Signals

Similar to new positions, closing positions are also tracked via breakouts. For System 1, this was a 10-day breakout. In other words, if they were in a long position, and a new 10-day low occurred, they would close the position. Vice versa, if they were in a short position, and a new 10-day high occurred, they would exit the position.

When closing positions, the Turtles would close the entire position, meaning all units were closed.

System 2 used the same method, except the Turtles looked for the 20-day breakout for closing positions.

Stop Losses

Losses for each position was capped at 2%. Because N was the equivalent of 1% of risk, the Turtles would place their stop losses at 2×N away from their entry.

Stops were adjusted every time Units were added. As Units were added in ½ N increments, the stops were moved the same distance. This ensured for the total position, the stop loss would always be 2×N from the last entry.

Some Turtles used an alternative stop loss strategy, known as the Whipsaw. This strategy incurred more losses, but resulted in better profitability. Instead of placing stops at 2×N away from entry, the Turtles would place stops at ½ N from entry. If a position was stopped out, the Turtles would re-enter the position if the market again reached the original breakout price. In this scenario, stops weren’t adjusted when Units were added to a position. Here, a new stop was placed ½ N from any new entry, for the Unit added. The overall risk was still 2% of equity, and no stop adjustments were necessary.

Miscellaneous Turtle Trading Techniques

Placing Orders

Due to the size of the positions the Turtles were trading, they generally didn’t place stop orders ahead of time. Instead, the Turtles would monitor the price and manually call in their orders to close.

Additionally, Turtles used limit orders, even with the risk of not getting complete fills. Market orders were too risky as they could result in much higher slippage, especially with the order sizes they were working with.

Multiple Entry Signals

In some cases, it was possible to get several signals all at once, especially with correlated markets, and different contract months for the same commodity. The Turtles simply traded the signals as they came, until they reached their Maximum Units. The Turtles would also only open a single position in a single market at any time. For example, for a particular commodity, if signals for different months were breaking out at the same time, the Turtles would only enter a single position for the month that was the strongest, assuming it provided enough liquidity.

Expiring Contracts

The Turtles considered two factors before rolling over expiring futures contracts.

First, they would only roll over into a new contract if the price action of the new contract was in a breakout position, similar to the currently held contracts.

Second, they tended to roll over the contract several weeks before expiration to ensure there was still enough volume and liquidity, depending on their position size.

Using Turtle Signals to Trade

The information outlined below provides details on how to use the information provided in the signals from Turtle Signals to trade. It also covers how to adapt the original Turtles’ trading system so it can be used in your day to day trading. This is important since you’re most likely not an institutional trader and will have significantly different account and position sizes, as well as the time commitment compared to the original Turtles.

Choose Your Markets

There’s two main considerations in choosing which markets to trade. The first is your time commitment. Unlike the original Turtles, you likely aren’t able to commit a full day’s worth of attention to trading. In this case, consider starting with only a small subset of the available markets and grow as you’re able to.

The second consideration is account size and keeping your risk in check. For example, if you want to trade Heating Oil contracts with a Point Value of 42,000, the typical unit size would require an account value of at least $200,000 to trade the minimum of 1 contract.

If you’re trading small account sizes, then you will be better off trading smaller Point Value futures, or individual stocks or cryptocurrencies.

For individual stocks or cryptocurrencies, we use the Point Value equal to 1, making the calculation simpler, and thus the Unit size is becomes 1% of your account value divided by N, or the 20-day ATR value.

Maximum Units

For any future, stock, or cryptocurrency, Turtle Signals will show units up the maximum of ‘4’ as we don’t know what markets and directions you’ve taken. It’s up to you to track your maximums for other categories and directions. For individual stocks, you’ll need to keep track of sectors and consider diversifying your positions so as not to hold too many units in the same or correlating sectors. The same applies even more so for cryptocurrencies as these are very highly correlative. We recommend a maximum of 6 Units per direction, not including BTC.

New Position Signals

New signals will show up in the appropriated private Telegram channels, including the ticker, trigger points, details required to size your positions, and where to place stops. The signals also identify if it’s a System 1 or System 2 position.

Adding to Positions / Stops

The points at which stop losses and additional units are added are based on calculated trigger points. In reality, your actual position entries will differ due to slippage and the time it takes to get an order submitted and filled with your broker. Your stops and when you add to your positions should be based on your actual entries. Turtle Signals provides both the theoretical price as well as the distance from actual entry to help with this. Using the distance from actual entries will help to ensure you don’t put too much at risk, or get stopped out too soon.

Placing Stop Orders

Unlike the original Turtles, it is absolutely recommended to place limit stop orders with your broker/on your trading terminal/system. The original Turtles didn’t do this since their large orders would be visible and could be front-run. Unless you’re placing huge dollar value orders in low-liquid markets/securities, please place stop-losses instead of waiting for the signals.