Today, we are going to discuss a very famous case known as the Turtle Trading Rules. This case is not only a story to listen to, but it is also a very well-known trading strategy. Whether you are engaged in quantitative trading or subjective trading, it is necessary to draw nourishment from this trading rule, understand its details, and apply it organically to the practice of your career.

The Turtle Trading Method originated from a debate between the world-renowned futures speculator Richard Dennis and his good friend Bill Eckhardt—whether outstanding traders are born or made. Dennis believed that he could almost turn any person into an excellent trader, while Eckhardt thought it was a matter of talent, not a matter of cultivation.

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Richard Dennis

So these two friends made a bet, and they placed large advertisements in Barron's, The Wall Street Journal, and The New York Times to recruit trading students. Out of 1,000 applicants, he selected 80 for interviews and chose 10 from them. Later, the list grew to 13, with the additional three being friends they had known before.

At the end of December 1983, the students were invited to Chicago for two weeks of training. Why Chicago? Because the CME CBOT (Chicago Mercantile Exchange) was located in Chicago at the time. By early January 1984, they began trading with small accounts. In early February, the organizers provided most of them with funding accounts ranging from $500,000 to $2 million.

How did they test it? They imparted a trading rule at the time, which was the Turtle Trading Rules.

Turtle Experiment Strategy:

Turtle Experiment: StrategyEntry: Tang Qi'an Channel on the 20th

Position: 100 times the ATR capital corresponding to 1 contract

Addition: After the position is established, if the market moves in a favorable direction by 0.5 ATR, add 1 contract, up to a maximum of 4 contracts

Stop loss: Stop out in the unfavorable direction by 2 times ATR

Re-entry: 55-day Tang Qi'an Channel

The Tang Qi'an Channel is formed by two lines. The upper line is formed by the maximum of the daily highs over the past N days. The lower line is formed by the minimum of the daily lows over the past N days. Sometimes there is a middle line, which is the average of the upper and lower lines. When Donchian invented this method, he set N to 20.

The position is 100 times the ATR capital corresponding to one contract. Here, you don't need to focus on ATR; I will give a simple explanation of the ATR indicator in the next lesson.

In summary, when I open one contract of a commodity, I need a considerable amount of capital to ensure that my risk is controllable, so I open one contract. After opening, if the market moves in a favorable direction for my position, moving by 0.5 times the ATR, I will add one contract; if it continues to move, I will continue to add, up to a maximum of four contracts.

What if the market trend does not go as desired and moves in the opposite direction?The previously mentioned five difficulties to avoid in trading, and the application of the five treasures of trading. Simply apply a stop loss, and if the trade moves in the unfavorable direction by twice the ATR, then stop the loss. After the stop loss, wait for the next opportunity and be even more strict, only re-enter when the price breaks through the 55-day Donchian Channel.

Results of the Turtle Experiment:

The Turtles became the most famous experiment in trading history because the students achieved an average annual compounded return of 80% over the subsequent four years.

This is the charm of professional trading, and this is the charm of systematic thinking.

People like Dennis, who performed such great miracles, eventually summarized it into a ready-made system, using a solid system to avoid the five difficulties of trading and to mine the incredible results formed when exploring the five treasures of trading.

Well, that's it for today's sharing, I wish you all smooth investments.