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Turtles - Trend Following

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If you are not familiar with the story of the Turtle Traders, then go away and read up on it now.

 

Actually, DrBubb has provided us with an unusual and entertaining twist on this story... can't find the post on it now, but perhaps he would be gracious enough to recount it on this thread.

 

-----------

 

Anyway, the Turtles were high-successful trend-followers who were taught a trading system by Richard Dennis and William Eckhardt back in the 1980s.

 

This thread is dedicated to reviewing their alumini and the specifics of their method.

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The actual Turtles rules, I found after a long search a few years ago... http://www.metastocktools.com/downloads/turtlerules.pdf

 

However it is based on futures trading and contracts. I had to go back further and work from first principles from Richard Donchian, the father of trend following, where these rules came from. The Richard Donchian rules had a flaw though, you were in the market all the time, you switch from long to short and short to long. There was never a time to be in cash and side step non trending markets. That is why there are so many variant systems out there.

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Turtle Trading Family Tree

 

Richard Dennis: Turtle Students

  1. Jerry Parker.
  2. Tom Shanks.
  3. Paul Rabar.
  4. Mike Carr.
  5. Curtis Faith.
  6. Mike Shannon.
  7. Jim DiMaria.
  8. Craig Soderquist
  9. Rudolph Papirnik
  10. Liz Cheval
  11. Anthony Bruck
  12. Jim Melnick
  13. Michael Cavallo
  14. Philip Lu
  15. Erle Keefer
  16. More.

 

Richard Donchian: Students

 

A thought from one of Donchian’s students, Brent Elam of Elam Management Corp.:

 

I remember in 1979 or 1980 at one of the early MAR conferences being impressed by the fact that I counted 19 CTAs who were managing public funds, and I could directly identify 16 of the 19 with Dick Donchian. They had either worked for him or had had monies invested with him. To me, that’s the best evidence of his impact in the early days. Dick has always been very proud of the fact that his people have prospered. He also was proud that after so many years in which his was the lone voice in the wilderness, his thinking eventually came to be the dominant thinking of the industry.

 

Richard Donchian, though now deceased, left many students that still trade or run money management firms. A sampling of his students include:

  1. Nelson Chang worked for Donchian. Started Chang-Crowell Corp.
  2. Robert Crowell worked for Donchian. Started Chang-Crowell Corp.
  3. Bruce Terry worked for Chang-Crowell Corp.
  4. Barbara Saslaw Dixon worked for Donchian. Started Spackenkill Trading.
  5. Paul E. Dean of TrendLogic was a student of Richard Donchian.
  6. Brentin Elam of TrendLogic was a student of Richard Donchian.

 

 

Ed Seykota: Students

  1. Ed’s Trading Tribe 2003.
  2. David Druz.
  3. Michael Marcus.
  4. Chauncey DiLaura.
  5. Greg Smith.
  6. Jim Hamer.
  7. Easan Katir.

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Two very good reads on the matter:

 

Michael Covel - The Complete Turtle Trader

 

Curtis Faith - The Way of the Turtle

 

 

The Richard Dennis interview in the original Market Wizards and the William Eckhardt interview in the follow-up New Market Wizards are good reads too (especially the latter imo).

 

Have just co-incidentally re-read this chapter in the last week.

 

Eckhardt's message:

 

You need an edge to trade in the markets. That means you need a system that has a positive expectancy when repeated over and over... and you need to believe in that edge, because that is what will keep you going during the losing periods.

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http://www.greenener...200#entry261509

 

It's a good story.

Do you know about "the bet" that led to the formation of the Traders?

 

The bet came about because Echardt's girlfriend, Lucy, was clever and he was teaching her to trade. He thought she had "a gift" for it, and Dennis thought anyone could be taught, and it did not require any particular gift. So that's what triggered the experiment. Some money was wagered on the result.

 

What happened to Lucy? Few people know the answer, but I do. I met her years later in London, and had an interesting 1 1/2 hour conversation with her. She was looking for a job with the company where I was running a small hedge fund. I was the only one in the firm who knew much about futures, so they asked me to speak with her. And we had a nice chat.

 

She told me about the bet and the experiment. She said she learned alongside the Turtle Traders and knew most of the techniques. She now thought she could do well if she had the right position at a trading firm. She particularly wanted to live in London, because Chicago had become boring for her.

 

A more interesting bit is coming: She did not want to start yet. She planned to first spend 3 months traveling with her fiancee before returning to London. It seems that she met him in Chicago, shortly after he WON THE LOTTERY for a few million dollars. The fiancee was an ordinary guy from Chicago, and they had "hooked up" together because he was ready for a more interesting life, and they want to Travel and Trade. The plan was to use some of the lottery winnings in the trading, but they wanted a firm that would provide a trading desk and risk some of their own capital, along with that of her future husband. Unfortunately, this sort of deal would not work for my firm, so there was really no way to help her.

 

She was a very attractive blonde woman (still!), and I could see why a wealthy trader like Eckhard would have been interested. And she had a voice that sounded like it should belong to a man. It was a slightly disconcerting combination.

 

Anyway, up to the time I met her, the real "special talent" that she had was her looks. Had she been more successful at trading, then might she have not needed to hook up with a Lottery winner? That was the main question that appeared in my mind. But I never asked it.


  •  

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Have just co-incidentally re-read this chapter in the last week.

 

Eckhardt's message:

 

You need an edge to trade in the markets. That means you need a system that has a positive expectancy when repeated over and over... and you need to believe in that edge, because that is what will keep you going during the losing periods.

 

Absolutely!

 

. . . and plenty of back-testing to make sure "the edge" is not the result of too much curve-fitting. For what its worth, I found Keith Fitschen's 'Building Reliable Trading Systems' a really informative read on this sort of thing.

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am reading that Turtlerules.pdf document.

Summarizing:

 

Clearly define list of tradeable markets

Buy on 21 or 55 day breakouts

Size position according to volatility as measured by ATR20

Risk control - Maximum number of units permissable to be carried

Stop points defined according to dollar amount (see position sizing, volatility)

Stay with winning trades until exit conditions are met - 10day low or 20 day low!

 

 

On type #2 errors:

 

The Turtles were told to be very consistent in taking entry signals, because most of the

profits in a given year might come from only two or three large winning trades. If a

signal was skipped or missed, this could greatly affect the returns for the year.

 

The Turtles with the best trading records consistently applied the entry rules. The

Turtles with the worst records, and all those who were dropped from the program,

failed to consistently enter positions when the rules indicated.

 

 

 

On the importance of using stops to keep losses small:

 

 

The most important thing about cutting your losses is to have predefined the point

where you will get out, before you enter a position. If the market moves to your price,

you must get out, no exceptions, every single time. Wavering from this method will

eventually result in disaster.

 

 

 

 

on the importance of letting your winners run:

 

 

For most traders, the Turtle System Exits were probably the single most difficult part

of the Turtle System Rules. Waiting for a 10 or 20 day new low can often mean

watching 20%, 40% even 100% of significant profits evaporate.

 

There is a very strong tendency to want to exit earlier. It requires great discipline to

watch your profits evaporate in order to hold onto your positions for the really big

move. The ability to maintain discipline and stick to the rules during large winning

trades is the hallmark of the experienced successful trader

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The only real surprise to me is how quickly the Turtle system pyramids after the initial breakout:

 

example, buying the max-permitted 4 units of gold:

 

Gold

N = 2.50

55 day breakout = 310

First Unit added 310.00

Second Unit 310.00 + ½ 2.50 or 311.25

Third Unit 311.25 + ½ 2.50 or 312.50

Fourth Unit 312.50 + ½ 2.50 or 313.75

 

So the whole position is built up within a move of 1.2% that's very aggressive!

 

however further down justifies this and says:

 

 

Another problem is the tendency to want to change the rules. Many of the Turtles, in

an effort to reduce the risk of trading the system, changed the rules in subtle ways

which sometimes had the opposite of the desired effect.

 

An example: Failing to enter positions as quickly as the rules specify (1 unit every ½

N). While this may seem like a more conservative approach, the reality could be that,

for the type of entry system the Turtles used, adding to positions slowly might increase

the chance that a retracement would hit the exit stops—resulting in losses—whereas a

faster approach might allow the position to weather the retracement without the stops

being hit. This subtle change could have a major impact on the profitability of the

system during certain market conditions.

 

 

 

-------------

 

As a contrast, Livermore's pivot-point system would only pyramid once the price had cleared the previous normal reaction and broke another significant high.

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Here is something that I think I could adapt into my own trading.

 

The Turtle method uses a value of N to denote volatility of the instrument being traded. Today this is commonly referred to at the ATR (Average True Range) in technical analysis parlour. Stockcharts.com provides the ATR indicator, although I've not seen it on any other sites. N is a moving average, so you denote over how many periods - the Turtles used 20day EMA.

 

The Turtles sized their positions according to the value of N, to take account of instrument volatility, so that dollar gains on all positions would theoretically be equalized.

-----------

 

Instinctively I tend to do this anyway - eg, if I am trading precious metals, we know that Silver is typically more volatile than Gold, but now this we quantify by exactly how much:

 

20 day volatility expressed as a % = 100 / Price * ATR20

 

Gold = 100/ 1397 *27.12 = 1.9%

Silver = 100/ 24.05 * 0.745 = 3.1%

GDX = 100 / 30.14 * 1.216 = 4.03%

 

etc

 

So we see that Silver is over one and a half times as volatile as gold, and that GDX is more than twice as volatile.

So to equalize dollar gains if we get signals from all three instruments, we should only need a position slightly less than half in GDX to generate the same dollar profit (or loss) as Gold.

 

 

I have sometimes heard people say that they prefer to trade some markets over others because they are more volatile, with the inference being that a position size X will generate more profit in a market that is more volatile. However, if you use this to calculate the volatility then you can readjust position size accordingly. A signal is a signal - A trade of 3X has the same expected outcome on as as trade of X on an instrument with 3 times the volatility. Knowing the volatility of the instrument you are trading should allow you confidently trade with larger positions in less volatile markets with the same expectancy.

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Just started on this:

 

51qnftkgqnl_sl500_-224x300.jpg

 

 

Although's Covel's "turtle" credential are somewhat in question (he was never a member of the original programme), I'm prepared to read what he has to say.

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If you are not familiar with the story of the Turtle Traders, then go away and read up on it now.

 

Actually, DrBubb has provided us with an unusual and entertaining twist on this story... can't find the post on it now, but perhaps he would be gracious enough to recount it on this thread.

 

I am trying to find the thread where I posted the True Tale, to save me re-typing it.

While looking for it, I came across this post:

 

Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules

by OLIVIER on DECEMBER 20, 2009

 

Excellent trading advice from Linda Bradford Raschke which makes for a great addition to my Trading Rules. Check them for more trading rules from great traders.

 

Shout-out to LeRoy Gardner. He posted those rules a while back on his blog: http://blog.leroygardner.com/

 

1. Plan your trades. Trade your plan.

2. Keep records of your trading results.

3. Keep a positive attitude, no matter how much you lose.

4. Don't take the market home.

5. Continually set higher trading goals.

6. Successful traders buy into bad news and sell into good news.

7. Successful traders are not afraid to buy high and sell low.

8. Successful traders have a well-scheduled planned time for studying the markets.

9. Successful traders isolate themselves from the opinions of others.

10. Continually strive for patience, perseverance, determination, and rational action.

11. Limit your losses – use stops!

12. Never cancel a stop loss order after you have placed it!

13. Place the stop at the time you make your trade.

14. Never get into the market because you are anxious because of waiting.

15. Avoid getting in or out of the market too often.

16. Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action.

17. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.

18. Always discipline yourself by following a pre-determined set of rules.

19. Remember that a bear market will give back in one month what a bull market has taken three months to build.

20. Don't ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.

 

/more Rules: http://www.tischendo...-trading-rules/

 

GEI Turtle Traders:

http://www.greenener...l=turtles&st=40

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Does Trend Following Work on Stocks? ( included in Appendix of Michael Covel's 'Trend Following' )

 

Brilliant and enlightening!

I especially like the use of ATR to set the trailing stop, a concept that I am embracing wholeheartedly.

 

> "For the purposes of this project the entry-method was the all time highest close"

 

Current stocks for selection:

http://www.barchart.com/stocks/athigh.php

 

An interesting traders' blog:

http://www.alltimehighstocks.com/

(embraces a bit of Weinstein too).

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Thanks for finding that post.

 

This comes from a review of the Complete Turtle Trader, by Vic Niederhoffer:

 

On pg 102 there's a discussion of quasi-Turtle Lucy Wyatt, who years later found her way to Chair's trading room, and shared some colorful stories about the proclivities of the trend-following greats…

 

p 102/ All one Turtle could remember about Lucy Wyatt was that she was always doing her nails*.

Mike Cavalo said that Wyatt had been Eckhardt's girlfriend.

*Michael Covel clarifies:

 

I did not have the opportunity to speak with Lucy Wyatt for my book, but I have talked with her extensively since its release. "Quasi" seems an incorrect description. She was a Turtle.

 

===

/source: http://www.dailyspec...rdpress/?p=2796

 

Other Excerpts chosen by Victor Niederhoffer:

 

p 17/ Dennis told Willis, "If you're buying wheat and it's strong and the beans are two lower and the wheat is five higher, why don't you sell the soybeans instead of selling the wheat you bought?" It was a very sophisticated insight. In fact, buying "strength" and selling "weakness" short still befuddles investors.

 

p 27/ Dennis knew the Turtles were "dumb stumps" and that the only reason they bought into everything was because he had made $200m. If he said "On Monday, you will buy the S&P when it's up exactly 35 ticks no matter what," all the Turtles would have gone over a cliff to follow orders. One Turtle said that when a guy has made $200m and he says "You can walk on water," people are going to say "Okay, I can walk on water."

 

p 45/ To those who saw them up close, Dennis had the capacity to make an observation in an instant that would take someone else weeks of painstaking math to figure out. Even Eckhardt marveled at Dennis's knack to intuitively see "it."

 

p 151/ Within a few years, Dennis was out of the game again. On September 29, 2000, Dennis Trading Group ceased trading and liquidated customer accounts. Burt Kozloff, an investor in Dennis's current fund, laid out the painful truth: "Dennis Trading Group was -50% down in June."

 

p 152/ While it was no solace for Richard Dennis, the moment when clients pulled funds from him in the fall of 2000 was a bottom for trend-following traders. Dennis's clients had panicked at the bottom and paid dearly.

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/ MORE -- from Source /

 

Richard Dennis used the scientific method, using empirical data and tests of hypothesis with computer models to create trading systems. Reading between the lines, it is apparent that the remaining successful Turtles use other systems and appropriate testing to create trades. Covel misses the significance of this most important point. The Turtles' money management alone might have proven a key element. Unless a system is profitable, money management merely postpones the eventual ruin. However the statistical analysis of money management is a necessary part of proper trading as our friend Dr. McDonnell shows in his excellent book.

Steve Leslie writes:

 

This encompasses so many things that have been discussed on this site for the years that I have been visiting it. My top ten list of what I learned from Mike Covel's book:

===========

10) Those who are willing can be taught almost anything.

9) Great people want to help others achieve great success.

8) Success in business requires tremendous concentration. Outside distractions must be avoided.

7) Sometimes it is best to leave politics to politicians.

6) Everyone fails at some point in his life. The true winners rebuild after their failures.

5) To put on a trade when everything is going against you requires character and commitment.

4) Rules are rules. Stick to them.

3) Adapt with the times. Be willing to be malleable.

2) Always leave yourself outs. Never commit everything to one position or to one person.

And the number one lesson:

1) The market is bigger, stronger and badder than you. Always respect it for the beast it is.

=== ===

Some of this is very confusing to me:

"Rules are rules. Stick to them."

... contradicts:

"Adapt with the times. Be willing to be malleable"

 

Which is it: Stick to the Rules, or Be Flexible ?

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=== ===

Some of this is very confusing to me:

"Rules are rules. Stick to them."

... contradicts:

"Adapt with the times. Be willing to be malleable"

 

Which is it: Stick to the Rules, or Be Flexible ?

 

Quite.

A lot of trading "wisdoms" seem to contradict one another - Except when it comes to risk control and money management.

 

You need an edge to trade in the market, but anyone can develop an edge by finding a trading style that best suits them. But money management is crucial. No system can prevent losses, so you must have risk control to enable you to easily take a string of losses and leave yourself in a position still able to trade.

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Quite.

A lot of trading "wisdoms" seem to contradict one another - Except when it comes to risk control and money management.

 

You need an edge to trade in the market, but anyone can develop an edge by finding a trading style that best suits them. But money management is crucial. No system can prevent losses, so you must have risk control to enable you to easily take a string of losses and leave yourself in a position still able to trade.

 

Or maybe it's alluding to the saying that a trader should never being married to their position. Jack Schwager recites one of the Market wizards who went into Oct 87 crash net long, but over the course of the trading day reversed to net short and then covered his positions near the LoD. That sort of trading dexterity is mindblowing.

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Did Dennis Win The Bet?

 

Curtis Faith says it was a draw and I partly agree with him. Dennis specified that he was out to prove that anyone could learn to be a trader and they just needed to be taught his trading strategy. But, as we now know, success varied amongst the Turtles. Some, with little or no trading experience, went on to become hugely successful traders while others, with losing accounts, were dropped from the project.

 

The Turtle System and The Traders' Cosmos

The market moves in three directions. Up when there is strength in the market. Down when the sellers have control. And sideways when there is a stalemate between the Buyers and the Sellers. The Turtle System took advantage of when the market was most profitable, that is when it was moving up or down, or in trading terms when the market was in a trend. Like Dennis, we at The Traders' Cosmos believe that trading should be kept simple. We also believe that you need to have the right strategies for the right market conditions. Catching trends in today's market is much harder as they simply don't trend as much, so the modern day trader has had to adapt to much more challenging market conditions. That does not mean to say one cannot be as successful as the Turtles. You just need the right mentor!

 

Check out a Webinar!

Are you interested in learning more about the markets and would like some help to get you started? Have you dabbled in the markets but have yet to achieve any consistency? To find out more, click here. I will be sharing one of my proven strategies with you. Known as Bouncer, this strategy has been highly successful so far in 2012.

 

===

/more: http://www.huffingto..._b_1807500.html

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AMAZING TURTLES, newly hatched

 

https://www.facebook.com/photo.php?v=564407943626810

 

Trending following?

Well certainly, they follow the leader

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Two very good reads on the matter:

 

Michael Covel - The Complete Turtle Trader

 

Curtis Faith - The Way of the Turtle

 

 

The Richard Dennis interview in the original Market Wizards and the William Eckhardt interview in the follow-up New Market Wizards are good reads too (especially the latter imo).

 

Covell does his own podcast. I listen to selected guests.

 

http://www.trendfollowing.com/podcasts/

 

You cannot trust anyone in this business so on that basis not sure if he is just a salesman as am very unsure as to his links to the original Turtles and to his own actual trading activities. So there is your risk warning.

 

But he does have the occasional excellent guest look way back he had Jack Schwager twice, plus some of the original turtles. More recently Jim Rogers. And lots of just himself bigging himself up......

 

Inverviewee list is shown at that website for ease.

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Covell does his own podcast. I listen to selected guests.

 

http://www.trendfollowing.com/podcasts/

 

You cannot trust anyone in this business so on that basis not sure if he is just a salesman as am very unsure as to his links to the original Turtles and to his own actual trading activities. So there is your risk warning.

 

But he does have the occasional excellent guest look way back he had Jack Schwager twice, plus some of the original turtles. More recently Jim Rogers. And lots of just himself bigging himself up......

 

Inverviewee list is shown at that website for ease.

 

I bought his first book (Trend Following) and have to say that I'm less than impressed by its contents. He spends most of his time seeming to "defend" trend following and profiling several prominent trend following traders, rather than get into any nitty gritty. Nowhere near as good as Stan Weinstein's book.

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I was thinking about creating a podcast.

 

What do people want to listen to about trend following?

 

Everything!

 

Start from the basics

 

- What is trend trading, and what it is not

- Why it works

- Pick some famous quotes on trading with the trend and go into more depth for each one

- Look at some famous trend traders, perhaps particularly Jesse Livermore who started out as a scalper but eventually learnt to stay with the trend until the end

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