turtle trading – – Tradingsim

Everybody wants to be a successful trader. While there are many strategies to become a successful trader, there are 10 pivotal ways that traders can have to build a winning portfolio. This TradingSim article will give traders the top 10 strategies on how to develop a solid trading strategy, highlight 5 specific investing strategies, and will assist investors who want to choose the best stocks or other investment instruments.

Why do investors need a trading strategy?

Investors need a trading strategy to avoid emotional investments. Trading strategies are necessary to avoid irrational actions during extreme swings in the stock market. It’s especially important to have a framework for trading during a bear market. Legendary investor Warren Buffett noted that investors have to remain calm to pick the best trading plan.

“Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well, ” said Buffett.

Buffett added that an emotionless trading strategy is crucial.

” You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls. It’s a business where you think,” added Buffett.

Having a trading strategy with predetermined rules that help investors make decisions help investors make the best choices. Here are 10 steps that will help formulate an effective trading plan.

1. Determine a trading goal.

When formulating an investment strategy, an investor should know what they want at the end of investing before they begin. If an investor has a set goal, it will give the investor more discipline to stick to them. For example, an investor may also want to set a short-term goal of buying a certain amount of shares of an in-demand stock, like Amazon(NYSE:AMZN). An investor may also set a long-term goal of increasing their portfolio by 15% over a year. A trading strategy will help an investor focus and reach that goal sooner.

2. Test a trading strategy

Once an investor has a plan, they can test it out. Backtesting a trading strategy could help test out the framework for a testing strategy. Using a simulator like TradingSim can help investors try out trading strategies before risking real capital.

Backtesting a trading strategy by analyzing the Dow Jones

3. Set aside a certain amount of time for a strategy

In addition to setting a realistic goal for trading, an investor must decide how much time they can dedicate to an investment plan. If an investor only has limited time to invest in the day, the quick action of day trading may be the best option. If investors want to take a long-term strategy, they can place trades for a longer period of time in swing trading. Investors can also determine a set time to invest each day to keep track of their investment goals.

The other key thing is making sure you spend the time to learn the basics of how to invest in the stock market with affordable introductory courses at a low price point. There is no point in spending a ton of money on anything related to the market until you feel this is something you are interested in over the long haul.

4. Determine which markets to trade.

Once a trader determines how much time to devote to trading, they should choose which market they will choose for investment. Traders may want to just focus on US stocks on the New York Stock Exchange or NASDAQ. For traders who want to explore other options, they can trade foreign exchange currency (forex) or futures.

5. Assess risk tolerance.

An investor must determine how much money they are willing to risk when placing a trade. Ideally, an investor shouldn’t risk any more than 5% of available capital.

Investors can determine a risk-reward ratio as well. A risk-reward ratio can be 1:3 if an investor has a $300 maximum potentially to lose and $600 maximum potentially to gain in investments.

Brandon Pizzurro, portfolio manager of public markets at GuideStone Capital Management in Dallas, noted that risk assessment is crucial, especially in this volatile stock market.

“Investing, in general, requires an assessment of one’s risk tolerance, and never is that risk tolerance tested more than in the midst of a bear market,” said Pizzurro.

6. Always have a stop-loss.

Traders should only risk what they can afford to lose. Instituting a stop loss will help investors stay withing their investing limits, especially in forex. A stop-order loss is a deal to sell a stock once it reaches a certain price. By setting a stop-loss, investors can limit their exposure to risk.

For example, a trader could be trading the euro and dollar at 1.1233. The trader could promise to sell the EUR/USD when it drops below 1.12. A stop-loss can set a limit on how much an investor loses on a trade.

Famous investor Bruce Kovner, chairman of CAM Capital, noted that stop-loss orders are the best way to minimize risk.

“Whenever I enter a position, I have a predetermined stop [loss]. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop [loss], and the stop is determined on a technical basis. I always place my stop beyond some technical barrier,” said Kovner.

7. Conduct thorough research.

In addition to having set limits with investing, conducting research is key. Investors can delve into a stock’s earnings report, price-to-earnings ratio, or track an investment on TradingSim’s charts. By conducting thorough research, investors can build a successful trading strategy. The TradingSim chart below shows the way investors can track Apple stock.

8. Have a trading journal

No, the journal isn’t to write about crushes. A daily trading journal can help an investor keep track of how the trades are going and how your plan is doing overall. A trading journal helps an investor keep track of what is working in a trading strategy and what doesn’t work. Trading journals should have these main aspects.

Date and time of trade. Keep track of when trades were made. Trades made in the morning may be more beneficial to investors than trades at different times.
Trace different instruments. An investor may have capital in different instruments, like commodities and stocks. Investors can track the performance of each different instrument to determine how their trading strategy works for each investment.
Entry and exit prices. An investor should keep track of the prices of stocks when they enter and exit trades.
Results of trades. Review the results of the trades. Investors can then go over successes and mistakes.

9. Learn from mistakes.

While checking a trading journal, an investor can notice a pattern in a trading plan-especially, when there are losses. An investor has to learn from mistakes to perfect their trading strategy. Forex trading expert Bill Lipschutz believes that losses are a natural part of trading and that investors can learn from trading losses and errors.

“I don’t think you can consistently be a winning trader if you’re banking on being right more than 50% of the time. You have to figure out how to make money being right only 20 to 30% of the time,” said Lipschutz.

Market analyst Paul Rosenberg noted that traders often make two errors when trading.

“Poor risk management, for example, using too much leverage. Having a bad risk/reward profile on trades is a staple of poor risk management that I come across (as a rule of thumb a trader should not enter into a trade unless analysis suggests they can make at least ~$2 for every $1 risked),” said Rosenberg.

Knowledge of trading information is important. However, Rosenberg also noted that overanalysis can hinder traders as well.

“Over-complication of the analytical process. Many traders utilize too much information to arrive at decisions, which causes contradiction and indecisive behavior,” said Rosenberg.

An investor can learn what worked and what didn’t work from their trading strategies.

10. Keep trading.

Even if a trading strategy didn’t work, they can learn from their mistakes to continue as a trader. Investors can tweak their strategies or try a new one altogether. Traders shouldn’t get discouraged by losses. They should just re-assess their strategy and stay in the investing game. Investors should stay encouraged by remaining confident and treating investing as the serious business that it is.

Different trading strategies can lead to success

There are many different trading strategies that investors can use. Some of the most popular plans will be explored with the steps mentioned in this TradingSim article.

Day trading can be successful for traders who want quick stock action

Day trading is a popular trading strategy for investors want to make a lot of quick trades- and possibly profits- every day. Short-term trading is the essence of day trading.

Owen Murray, director of investments at Horizon Advisors, notes that day trading may pay off most during a bull market because there are greater profits.

“Day trading typically becomes very popular during bull markets, because on balance, stocks are mostly moving higher and it is easier to make profits,” said Murray.

How to have a better day trading strategy

Day trading can work for traders in a bull or bear market if they take the right precautions. There is no one right way to day trade. However, using the above steps can help create a successful trading strategy. As mentioned in an earlier TradingSim article , investors must treat day trading as a business. Day traders can take these steps to be a more successful trader.

Day traders can use TradingSim’s guidance to become a better day trader.

Determine a day trading goal.

Day traders want to make profits s quickly, so they can set a goal of trading 5 stocks or so a day. As a trader’s confidence and track record grow, they can make dozens of trades a day. However, Merlin Rothfeld, an investment strategist, advises against making so many trades in such a hurry.

“When I started day trading back in 1998, I was a total gunslinger, averaging 550 trades per day,” said Rothfeld. “This caused me to be reckless in my trade selection and execution – not to mention that my broker was making a killing off the commissions I was paying on all those trades. “

“For this reason, I recommend that every day trader set a maximum number of trades to take in a day. Think of it like having a six-shooter: You only have six bullets in your gun, so you better make them count,” added Rothfeld.

Have the capital set aside for day trading.

While day traders may crave the excitement of making lots of trades, they must have the money to make the trades. Day trading is usually the most costly investment. The capital required to trade stocks could climb up to $25,000. Trading futures and commodities like oil may only require about $1,000 to invest in the stock market. The forex market may require about $1,000 or even less. There is no set amount for investing, but day traders shouldn’t risk more than 1% of their capital on trades.

Set aside a lot of time for trades.

Day trading happens quickly all day, so day traders have to be ready to trade at a moment’s notice. Traders must treat day trading as a second job and dedicate hours a day to tracking trades.

The best time to trade could possibly be when the market opens from 9:30 AM-11:30 AM EST. The first two hours of trading are often the most active, so day traders have the potential to earn the most money. The best time to trade futures is usually in the morning as well. Forex can be traded 24 hours a day because of the global trading around the clock.

Test day trading strategies often.

If traders want to try out their strategies before investing capital, backtesting day trading could be best. Day trading strategies can be tested on TradingSim before they’re implemented in real life. Simulated trades can help traders analyze how well or badly their trades are doing. Testing out trades can help determine which strategy is best for day trading. For example, if an investor wants to backtest day trading Coca-Cola stock, they can use charts like the TradingSim chart below.

Conduct up-to-the-minute research.

Since day trading is so volatile, it’s important to remain on top of financial news. By following blog posts on sites like TradingSim, day traders can stay informed on the latest financial news to make better-informed trades. Day traders should also have an up-to-date trading journal to keep track of the many trades that made.

Have stop-losses to minimize risk.

Stop-losses are important to stay ahead in trading. Kenny Polcari, senior wealth strategist at SlateStone Wealth, noted that it’s important to change course, change position size, and cut losses when necessary.

“Don’t get married to a position just because you like the name. Don’t be married to it if it’s going in the wrong direction. You’ve got to be able to cut your losses and then look at it again at a different time,” said Polcari.

Dennis Dick, proprietary trader and market structure analyst at Bright Trading, notes that it’s important to minimize risk since day trading is one of the most unpredictable trading strategies.

“The goal is to try to eliminate the overall market risk, which is essential in the current market environment,” he says. “Even if a stock has good relative performance, if the overall market has a significant decline, I am likely to lose money on that trade.”

A stop-loss order on a certain stock price will ensure that investors won’t risk more than necessary while making day trades.

Practice and dedication build better day traders

Research, patience, and limiting losses are key to being a successful day trader. Trader Deyanna Angelo noted that day trading is not an easy way to get rich.

“Day trading is a very difficult performance discipline, much like becoming a professional football player or playing a musical instrument to a virtuoso level. You first need to have a natural talent, followed by years of practice,” said Angelo.

Swing trading strategy an option for investors

In addition to day trading, successful trading plans can be applied to swing trading. Swing trading is a trading strategy in which investors strike during two major swings in the stock market. They enter or exit trades when the market swings high or low. In a bull market, swing traders can go long and trade at highs. In a bear market, swing traders can go short and sell when stock prices plunge.

Swing trading is similar to day trading, because an investor holds a stock for a short period of time. However, while several day trades could be placed every day, swing trades could be placed every few day or weeks. Investor Evan Medieros noted that traders should minimize their risk while swing trading stocks.

“I risk anywhere from 0.50 to 1% per trade. Position sizing and managing individual trades include stop losses, both timed & price,” said Medieros.

Similar to day trading, Medeiros noted that he has a series of stocks ready to trade over a few days.

“At any given time, I have 50 to 100 stocks on my bench that I want to get involved in once they ‘set up’. So it is a combination of waiting for the setups and aligning that with my target portfolio exposure, given the market environment, “said Medieros.

Best time of day to swing trade may not be at opening bell

As opposed to day trading, the best time of day to swing trade may not be when the stock market opens at 9:30 EST. At the opening bell, stocks generally move higher, so that may not be the best time for swing trading. When there is a pullback between 10AM-11AM, that may be the best time for swing trading.

Use swing trading indicators

There are three main swing trading indicators that swing traders can use to monitor stocks.

Moving averages

Moving averages help investors identify or confirm trends. In a simple moving average, all the closing prices are added up for a certain number of days. After the addition, the total is divided by the same number. For example, a 10-day moving average would take the closing price of the last 10 days. It would then be added up and divided by 10 to get the average price.

10 day moving average — 10 -day moving average

2. Relative Strength Index

The relative strength index (RSI), which helps determine if the stock market is overbought or oversold. The RSI is on a chart of 0 to 100. The market is considered overbought if the RSI presents any number over 70. If the price is below 30, the market is considered oversold.

3. Visual analysis indicator.

Visual patterns on charts can help investors easily keep track of what is happening in the stock market.

With indicators and risk management, investors can make the best of swing trading. While day trading isn’t for every trader, with research and persistence, investors can try day trading as a method to potentially increase profits.

Scalping trading strategy another option for investors

In addition to switch trading, scalping trading is another short-term trading strategy that investors can use. It’s similar to day trading, but differs in an important way. Scalping make numerous trades for smaller profits. Scalping traders can profit from small price changes. Instead of holding positions for a few hours or weeks, scalpers may just hold a position for just a few minutes.

Small goals and a lot of time are key to scalp trading

Scalping is about getting smaller profits faster, so incremental goals are pivotal. Traders should start by looking for gains in the range of $0.10-$0.25.

Scalping is such a high-volume trading strategy that quickly changes. So, scalpers need a lot of spare time to monitor the markets. Watching the stock market for hours is a must to catch any slight price changes.

Scalping trading strategy has low risk, but requires high wins

A benefit of scalping is that it is low risk. However, a trader must have a higher number of wins because the profit margin is so minuscule. Traders need a large amount of capital to enact dozens or even hundreds of trades.

Traders should make sure the risk/reward ratio is 1:1. As noted in a previous article about scalp trading, a trader shouldn’t risk more than .1% of their capital on a trade.

If an investor’s trade position is $100 and the stop price is $99.50, the risk and reward must equally be 50 cents. The trader should exit a trade at $100.50 to turn a profit.

Technical analysis can help scalpers

Scalpers can hone their scalping trading skills by using technical skills. Just as moving averages can help with swing trading, they can be useful with scalp trading as well. The simple moving or exponential moving average indicators show the average stock price over a particular time. The exponential moving average may be better for scalpers because it monitors price changes quicker than simple moving averages.

The Stochastic Oscillator Indicator is another way to monitor momentum. Traders use the Stochastic to predict the momentum before a price change. The Stochastic Oscillator and the exponential moving average are just two methods to analyze stocks for scalp trading.

With analysis, a lot of time to invest, and interest in incremental gains, traders can test out the scalping trading strategy.

Position trading strategy is a long-term option for traders

In contrast to scalping, long-term investors that want a longer-term trading strategy can try position trading. Short-term trading can last for minutes or hours. However, position trading can stretch for weeks, months, or even years. Position trading is a long-term stock market trading strategy in which traders want to catch long-term trends in the market.

Position trading strategy may be best for passive traders

Traders that don’t have a lot of time to invest-and more-capital- could try the position trading strategy. For traders that want to more closely emulate long-term investing, position trading could be a better option. Some position traders may just place a few big trades a year, so they can trade part-time if they want. Beginning traders that want to gently wade into trading may find position trading best for them. Position traders hold positions for a longer period of time, so more capital is required to invest.

Bear market may be good time for position trading

Ironically, a bear market may be a better time to try position trading than in bull markets. In a bull market, positions may eventually tumble in a correction. A trader placing positions at the end of a bear market may be in a better position when the stock market eventually recovers. If a position trader is patient and rides out the end of a bear market, they could potentially profit when a bull market comes around again.

Specialized position holding is key

Because a trader is holding a position for a long time, it’s pivotal that position traders have specific holdings. If a position trader focuses on one or two sectors to follow, like tech or healthcare, it will be easier to spot trends.

Position trading uses many research tools

Position trading takes a long-term view, so traders can use two types of analysis. Traders can use fundamental analysis to study earnings reports of stock and overall market trends to determine how to trade.

Position traders can also use technical analysis to monitor their positions. They can use the 200-day exponential moving average to identify long-term trends. It could possibly be a bullish signal when a price of a market rises above the 200-day average. Traders can watch the 200-day exponential moving average to determine where the market is trending.

Traders that have patience and want to minimize risk may find that position trading is the best option for them.

Trend trading may be best for long-term investors

Similar to position trading, trend trading is ideal for traders who want to hold positions for a long time. Trend traders look at a stock’s price trend over a long period of time. A trader then compares the price to broader market trends. An investor then makes a trade based on that knowledge about the market trends.

Legendary trader Paul Tudor Jones noted that the 200-day moving average indicator is important to monitor trends. Trend trading can use the 200-day moving average indicator to watch assets.

“My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks, and commodities. The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, then you get out. You play defense, and you get out, ” said Tudor Jones.

Trend trading requires fewer trades

Similar to position trading, few trades are required to start trend trading. A trend trader could just make about a dozen trades a year to remain active.

Because turtle trading is a slow and steady process, trades can be made at any time. There is no rush at the beginning of the day like day trading. There is also no need to wait for a pullback later in the trading day, such as with swing trading. Whether it’s at opening bell in the US stock market or after-hours with forex, turtle trading has a flexible timetable.

“The trend is your friend” in this trading strategy

Financial adviser Ali Hashemian noted that trend trading may be best for trading commodities like oil or gold. The trends in those commodities may be easier to track than stocks, so trend trading may be best for commodities.

“Trend trading is commonly utilized by commodity traders. Most often this trading style will include price calculations, moving averages, and take-profit or stop-loss provisions. Traders will use price movement and technical tools to determine trading signals,” said Hashemian.

Trend trade signals and indicators help traders make best picks

A number of different trade signals can be used, and traditionally there are set rules and risk controls put into place when using this trading strategy. Other than the moving average, there’s the Moving Average Convergence Divergence (MACD). If the MACD moves above 0, that’s usually a sign to buy. If the MACD moves below 0, that’s usually a bearish sign for trend traders to sell their assets.

The aforementioned relative strength index (RSI) signals a buy trend if it moves above 50. An on-balance volume indicator can be used to measure an asset’s trading volume. Joseph Granville, the developer of the metric, believed that an increased volume in an asset means a bullish or bearish turn.

Risk management key to trend trading

Famed trend trader Paul Tudor Jones also advises having a “5:1 risk /reward. Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%”, said Tudor Jones. Minimizing risk is key to get ahead in trend trading. A maximum 2% stop is also advisable for beginning turtle traders.

Turtle trading is most famous form of trend trading

Turtle trading is the most famous form of trend trading. The popular method emphasizes a purely technical and methodical approach to trades. Financial analyst Zaheer Anwari noted that turtle trading can pay off if traders are patient and emotionally detached while making trades.

“With time and experience, it becomes a detached, robotic and stress-free approach to the markets, as the initial risk is always very low and well managed and only the very best trades are taken,” said Anwari.

Turtle trading could be best for traders who want to bide their time in the markets. The turtle trading strategy could also work traders who want or need set trading rules.

Different trading strategies can help create success

There is no one trading strategy that will create a successful framework for a trading strategy. Just as the stock market is different every day, so is a trader. What may work one day may change the next. However, the 10 steps and specific trading strategies will help traders make better choices.

TradingSim’s charts and articles can help beginning or experienced traders develop the best trading strategies to navigate the volatile stock market. With a methodical framework that makes room for flexibility, traders could find a trading strategy that works best for them.

Does turtle trading still work? During an economic downturn, many traders claim to have effective strategies to beat the system and still maximize profits. The turtle trading system is one of those systems. This article will explain the turtle trading system and how it worked for traders in the past. In addition, this article will demonstrate whether turtle trading could work in this volatile, coronavirus-addled market.

What is turtle trading?

When he met fellow trader, William Eckhardt, Dennis asserted that traders could be grown as easily as turtles on a farm that he saw in Singapore. (So, that’s the origin story of turtle trading’s name.) Eckhardt disagreed and thought that traders like Dennis had a natural gift. As a result of the disagreement, they decided to bet and see if Dennis could train random people to trade as well as him.

The turtle trading system started in 1983. ( Cue the Trading Places soundtrack.) Commodity trader Richard Dennis believed that anyone could be taught to trade to be an expert trader like him during the go-go time of trading in the 80’s. Richard became a legendary trader by the age of 26. During his time on the Chicago Mercantile Exchange, he built his net worth up to a staggering $100 million.

As Dennis noted in the book, Market Wizards, “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”

Who really started turtle trading?

While Dennis popularized turtle trading, Richard Donchian is the father of trend trading. Donchian started the system in the 1960’s with the following weekly trading rule:

“When the price moves above the high of two previous calendar weeks (the optimum number of weeks varies by commodity), cover your short positions and buy. When the price breaks below the low of the two previous calendar weeks, liquidate your long position and sell short.”

Donchian had an earlier system of risk-averse trend trading, but Dennis perfected the turtle trading system.

How did Dennis find his turtles?

When Dennis started the turtle trading experiment, he placed an ad in The Wall Street Journal and found 13 “turtles” out of the thousands who applied. He tested them with a series of true-or-false questions. Five of them are below.

Others’ opinions of the markets are good to follow.
Trades in big money are made when one could get long at lows after a big downtrend.
An investor should know where to liquidate if a loss happens.
It is not helpful to watch every quote for an investor’s trading in the markets.
If an investor has $10,000 to risk, an investor should risk $2,500 on every trade.

Dennis chose investors to be turtle traders if they chose 2,4, 5 as true and 1 and 3 as false.

How else did Dennis attract his turtles?

Dennis placed a wide-ranging advertisement in the Wall Street Journal. The ad looked like this:

Richard J. Dennis of C&D Commodities is accepting applications for the position of Commodity Futures Trader to expand his established group of traders. Mr. Dennis and his associates will train a small group of applicants in his proprietary trading concepts. Successful candidates will then trade solely for Mr. Dennis: they will not be allowed to trade futures for themselves or others. Traders will be paid a percentage of their trading profits, and will be allowed a small draw. Prior experience in trading will be considered, but is not necessary. Applicants should send a brief resume with one sentence giving their reasons for applying to: C&D Commodities 141 W. Jackson, Suite 2313 Chicago, IL 60604 Attn: Dale Dellutri Applications must be received by October 1, 1984. No telephone calls will be accepted.

Who were the original turtle traders?

One of the original traders, Michael Cavallo, recalled the simplicity of the advertisement.

“The ad looked like the New York Yankees looking for a starting shortstop,” said Cavallo.

Cavallo was one of the turtles from very diverse backgrounds. Dennis not only chose turtles from diverse backgrounds but also had diversity in gender as well. In addition to male traders, Dennis chose women to be turtles during a time when there were few women in trading. Cavallo was a commodities trader, but many of the traders were blue-collar workers like Jim DiMaria. DiMaria was grateful for the opportunity to learn from Dennis.

“That was enough to pay my grocery bills and I knew that was going to be secure,” DiMaria said.

Another turtle, Michael Shannon, was an unsuccessful broker until he became a turtle trader. He also noted that the traders learned a lot about discipline from Dennis.

“We’re purely technicians,” said Shannon. “Dennis taught us to be consistent, disciplined and execute the signals that come up and he was right.

What were the turtle trading system requirements?

After Dennis found his turtles, he gave $1 million of his own money to invest in their own accounts. Dennis placed an emphasis on mechanical trading over emotional trading. In addition to purely technical training, he also downplayed the importance of following financial reports on TV or in financial reports. ( No doubt, if Twitter was around, he would have disapproved of that, too.) Dennis put little faith in financial analysis.

‘You don’t get any profit from fundamental analysis. You get profit from buying and selling. So why stick with the appearance when you can go right to the reality of price?” said Dennis.

They could trade a maximum of 12 contracts a day for a month. There were six main turtle trading rules.

What were the turtle trading system rules?

Markets-What to buy or sell. Dennis told investors to invest in all major stocks, bonds, metals, commodities, and currencies. The turtles minimized the risk in multiple markets.
Position Sizing–How much to buy or sell. The turtles traded using a position-sized algorithm. The system looked at a 20-day exponential moving average true range. Turtles used that system to gauge the unpredictability of the markets. The turtles were trained to expand their positions when the market volatility was low. They traded in just 1% of the total equity of their accounts.
Entries–When to buy or sell. The turtles used two different entry strategies. The first entry system was a 20-day high or low. The second was a 55-day breakout entry strategy. Automatic systems create entry systems. Dennis told the traders to take all the signals on offer so they wouldn’t diminish the returns.
Stops-When to get out of a losing position. Dennis taught the turtles to stop losses whenever possible. A pivotal part of stop losses was determining them before the traders’ losses became too big.
Exits-When to get out of a winning position. There were two exit rules. The first rule had a 10-day low for short positions. The second rule had a 20-day/high low for long positions.
Tactics-How to buy or sell. Dennis taught traders about the psychological aspects or turtle trading. He also taught his turtles to exercise patience while placing orders during market volatility.

This TradingSim chart shows an example of trading through trend following.

Did turtle trading work when it first started?

Turtle trading had mixed results for the traders. One of the turtles, Richard Sands, claims the group netted $175 million using the system. Another trader, Michael Shannon, noted that despite the discipline they were taught, there was a lot of volatility.

“There are days when you take a significant hit and there are days when you make lots of money and of those the days when you make lots of money is probably the most psychologically damaging because suddenly you become fearless.”

How did trend following help turtle traders?

Shannon says he made about $3 million during his four years under Dennis’ tutelage.

Trend following was key to the traders. “The trend is your friend” is a mantra of turtle traders. That belief means that traders can follow trends of growth or value stocks to predict when the next bull or bear market will happen. Shannon noted the simplicity of trend trading.

“The market being in a trend is the main thing that eventually gets us in a trade. That is a pretty simple idea. Being consistent and making sure you do that all the time is probably more important than the particular characteristics you use to define the trend. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend,” said Shannon.

Even if the trends plummeted, traders still made a profit. Author Michael Covel, who wrote a must-read book about turtle trading, The Complete Turtle Trader, noted that turtle trading worked for most of the first traders.

“Once you recognize that market moves are random you simply need to put yourself in a position where you can capitalize on a move when it happens,” explained Covel.

“Seven out of ten will be dogs but three will make money and trend followers know that the winners will pay for the losses and give them a tidy profit,” added Covel.

What are the key tenets of trend trading?

Financial experts like Ali Hashemian noted that trend following is a systemic and methodical way to trade.

“Trend trading is a systematic approach to investing based on an asset’s current momentum. “A number of different trade signals can be used, and traditionally there are set rules and risk controls put into place when using this trading strategy. Simply put, this trading style captures gains by riding the upward or downward trend in an investment,” said Hashemian.

While many day traders may want to just use the system for stocks, Hashemian says most trend trading can mostly be for futures or commodities.

“Trend trading is commonly utilized by commodity traders,” said Hashemian. “Most often this trading style will include price calculations, moving averages, and take-profit or stop-loss provisions. Traders will use price movement and technical tools to determine trading signals.”

“Signals can often cause a trade too soon, and thus full potential gains are not always captured,” said Hashemian.

How can turtle traders identify a trend?

There are three types of primary trends that turtle traders can monitor to make trades.

Uptrends happen when stock prices increase. Turtle traders can go long on the stock as it’s rising.
Downtrends happen when a stock is falling. A trend trader can go short on a stock’s falling price.
Sideways trends happen when stocks are reaching neither higher or lower points. Turtle traders may not act on these trends, but day traders who want to jump on short-term market movements may want to move on sideways trends.

What system can turtle traders use to monitor stocks?

The turtle system used the Donchian Channel, a trend-following indicator. When turtle traders use the Donchian Channel , they usually set the indicator to monitor stocks over a 20-day price range. The original turtles traded during a 20-day breakout. However, they would only trade if there wasn’t a trend from the previous 20-day breakout. Turtles felt that if the previous trend couldn’t predict a breakout, the next breakout would produce a trend. Traders felt that they were minimizing risk if there wasn’t a previous breakout.

The 55-day Donchian channel indicator was added to catch more long-term emerging trends in the markets. Traders didn’t have to wait for a breakout to fail before making a trade. The Donchian Channel indicator is still used today by many traders.

This TradingSim chart shows how the Donchian Channel can be used for low-volatility stocks.

Donchian Channel with Low Volatility Stocks

What are the top trend indicators for turtle trading?

The Donchian Channel is a moving average indicator. Moving average indicators are just one of the many trend indicators. Here are three of the most popular trend indicators to help turtles trade and track trends.

1.Moving average indicators find the average price of a stock over a timeframe, such as 20 or 55 days. It can predict past trends to help traders track trends better.

2.Average directional indexes track trends on a scale from 0 to 100. Values that range from 25 to 100 indicate a good trend for stocks. Values under 25 indicate weaker trends in stocks.

3.Relative strength index identifies momentum in overbought signals. They’re also used to identify momentum in prices. The relative strength index operates on a scale from 0 to 100. When a stock is overbought, the indicator is above 70. A stock is underbought if it’s under 30.

Why was the turtle trading system successful for some traders?

Trader Mike Martin noted the simplicity of the turtle trading system. Because the turtles only invested about 2% on a single trade, the turtles weren’t hastily risking too much of their money.

“The Turtle rules consisted therefore of a trend-following system of entries, exits and risk management. The model was built to catch the middle of the move and although Turtle trading results were volatile, the group was always managing risk. In essence, risk management was everything,” said Martin.

“The system is genius in its simplicity. A certain mathematical elegance can be found in its use of ATR [Average True Range] for entries, exits and position sizes and what you get out of each is up to you,” concludes Martin.

Shannon also believes that turtle trading was effective for him and other traders. However, the trading system didn’t work for all traders.

Why did the turtle trading system fail for some traders?

While some turtle traders made a profit when they were with Dennis, once they struck out on their own, the opposite happened.

“Interestingly the Turtles all made big money while they were working for Richard Dennis. However in 1988 when they went out on their own things it was another story,” says Covel.

“Many didn’t stick with it and fell apart. So even though there was a mechanical system that they all knew worked, at the end of the day other factors such as character issues became their downfall,” added Covel.

The overriding theme seems to be that systems may not change, but the market does. Financial analyst Mark Biernat noted that the turtle trading system may not work for two reasons. Ironically, the success of the program means it’s easier for other traders to copy. Copycats can alter the system and change a winning formula.

Biernet believes that the turtle trading system worked well for traders until 1996, when newer trading technology may have replaced the older trading systems of the 1980’s. He also asserts that the blue-chip stocks that were prominent in the 80’s like GM (NYSE:GM) are not as dominant as they used to be now.

This TradingSim chart shows an example of the blue-chip stocks the turtles traded.

Does turtle trading still work in today’s market?

As Al from TradingSim noted in an earlier article about trend trading, day traders may have to adjust their fast-paced trading schedule to move at, well, a turtle’s pace. While the slower pace may have worked with a more primitive trading system in the original turtle’s time, it may be different for more active traders. Busy traders tend to take action more quickly after monitoring the markets all day. However, turtle traders can watch trends develop for weeks, months, or even years.

While turtle trading worked in the 80’s, there are differing opinions about whether the turtle trading system would work now. In this era of Wall Street volatility, Dennis himself acknowledged that the turtle trading system could possibly work now. In an interview in 2018 before the current unpredictability, he noted could be harder to implement now because there was less volatility in the market two years ago.

“Well good luck with that one. The markets have changed a lot. What works is changing and is a bit of a problem, but what’s more of a problem is the lack of volatility. Volatility seems to me to have trailed off over the years intermittently. You know, I’d rather have the volatility back. I mean that’s a variable you can’t control, but I think that it’s more important than adjusting the system, although adjusting the system is important too,” said Dennis.

Original turtle trader says system is evergreen

Jerry Parker, a disciple of Dennis and one of the original turtle investors, believes that turtle trading is timeless. He believes that the pivotal tenet of risk management when trading stocks and commodities is pivotal.

In an interview in 2018, Parker asserted that the main philosophy of turtle trading can be implemented during a bull market or a bear market.

“Well, I would say the basic philosophy hasn’t changed. You’re continuing to do research, finding robust systems, and that means systems with the least amount of parameters that tell you how to initiate, liquidate, or stay out of a trade. We’re always looking to build systems that are based on momentum or based on range dependent discrete time frames where you’re confirming that a trend is in place”, said Parker.

“So, you’re always looking to capture directional price movement. Obviously, managing risk is paramount, so you manage risk from the trade size, you limit it in the markets and sectors that you trade,” added Parker.

Parker also said that the risk management strategy can be tweaked to adapt to today’s stock market.

“We have a risk management concept that overlays the portfolio that’s based on marginal utility. So, we’re harvesting profits along the way which is very different than what we did learn in the original Turtle trading programs. We’re still doing the same things, just a little bit differently than we used to,” said Parker.

Is turtle trading past its prime?

Gruppe Senioren mit Rentnern am Rollator und mit Gehstock

While Parker claims turtle trading is timeless, other financial experts say that turtle trading went out with Jordache Jeans. Trader Scott Michael Cole believes that turtle trading was innovative in the 1980’s, but wouldn’t be effective now. He believes that the turtles had fewer contracts to hold in a long or short position than traders have now. They only had 12 contracts, while there are many more for today’s traders. Therefore, Cole believes that turtle trading wouldn’t work now.

He contends that inflation was higher and there were more trades to follow in the 1980’s than there are now. Cole believes that turtle trading was effective when Dennis first started. However, with the current low inflation, turtle trading may not be as profitable as it was 35 years ago.

Turtle trading isn’t perfect, not even for the king of the turtles. Dennis himself lost $10 million during the Black Monday crash of 1987. He also had to settle a $2.5 million lawsuit brought by investors. The investors said that Dennis himself wasn’t following the turtle trading rules. Dennis settled the lawsuit with the investors, but denied any wrongdoing.

With fewer trends in the current markets, there is also only about a 40% profit from turtle trading. Traders can expect a 60% loss on average. Turtle trading critics argue that while trend following was profitable in the 1980’s with big stocks like GM (NYSE:GM), there isn’t as much of a payoff now.

Turtle trading could work for patient investors

While there are downsides to turtle trading, there can upsides if investors are patient. Some financial experts note that there are four key facts to remember for investors.

Take time with trends. Trend following means catching the trend right in the middle. Don’t rush into trends at the beginning and don’t come into the tail-end of the trend, either.
Position sizing should be minimal. In the current volatile stock market, keep each position small. Only risking 1 or 2% of funds on a trade can reduce large losses.
Diversification is key. Diversification is pivotal to turtle trading. The turtle traders of the 80’s invested in a wide array of assets, from stocks to foreign currency.
Capitalization. Turtle traders don’t need money from Richard Dennis, but they do need a good investing fund to make trades. Because this is low-risk, small-reward investing, emerging turtle traders need a substantial trading nest egg to soften the blow of trading losses, especially during market volatility.

Is there a psychology to turtle trading?

While the Donchian Channel may be an effective tool to measure turtle trading, there were other factors important to the turtle trading system. The turtle system may have worked or not worked for traders because of psychological reasons instead of financial ones. Shannon noted that there was a “psychological makeup for trading” that outweighed any broker experience.

Dennis noted that mental discipline was just as important to turtle trading as following his rules.

“I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad,” said Dennis.

Slow and steady rule-following wins trading race

Dennis noted that the psychological aspect of turtle trading was important.

“The majority of the other things that didn’t work were judgments. It seemed that the better part of the whole thing was rules. You can’t wake up in the morning and say, ‘I want to have an intuition about a market.’ You’re going to have way too many judgments,” said Dennis.

Fear and greed are the main driving forces behind trades. Dennis and his turtle traders took emotion about out of an investment. By just following the main rules and diminishing emotional trading, turtle traders can possibly maximize profits, according to Dennis.

“The market does not care how you feel. It will not prop up your ego or console you when you are down. Therefore, trading is not for everyone. If you are unwilling to face the truth about the markets and the truth about your own limitations, fears and failures, you will not succeed,” said Dennis.

Mind over matter in turtle trading

As Al from TradingSim noted in a previous article about trading psychology, “analysis paralysis” can hurt turtle traders. While it’s important to read financial articles from sources like TradingSim, ultimately, a turtle trader has to remove emotions from trading, especially when the market is volatile as it currently is now. It’s important to know when to exit a trade as a winner and when to cut losses.

Turtle traders have to learn to accept the risk that comes with investing. Even if there is limited risk in trend following, any loss can be emotionally devastating if investors put a lot of money in a stock. Even though they are following a trend, trends may change, especially with the current volatility in the stock market. Staying calm, especially during this volatile time, could be pivotal to success in turtle trading.

What questions should turtle investors ask?

Turtle investors may be mentally prepared to trade, but they still have to conduct research. Turtle investors often had to answer these questions every time they made a trade. If investors want to be experienced turtle traders, they should answer these pivotal questions.

What is the state of the market? The state of the market is just the current state of stocks. If Apple(NYSE:AAPL) is trading at $140, that is the current state of the market.
What is the volatility of the market? Risk management was important, so Dennis made sure his turtles monitored the stock market each day. If Apple’s stock fluctuated between $130 and $140, then the turtles said they had 1 N or unit of volatility. So, Apple’s volatility, in this case, would be 10 N.
What is the equity being traded? Turtle traders have to know the exact amount of money being traded. If they knew exactly how much they had, they could determine how much they were risking with each trade.
What is the system or the trading orientation? In addition to knowing the exact money turtle traders had available, they also had to have an exact plan for buying and selling stocks. That plan prevents traders from buying or selling stocks out of pure emotion. If Apple stock is tanking, a turtle trader won’t panic sell if they stick to turtle trader rules.
What is the risk aversion of the trader or client? Risk management was the name of the game of turtle trading. If a turtle trader has $1,000 to invest, only 1% or 2% should be invested in Apple stock. The minimal risk enabled turtle traders to minimize their losses.

Turtle trading can pay off- but only if risk is managed well

Trending stock turtle traders may monitor

Turtle trading may work now depending on a trader’s own talent- and temperament. In a bull or bear market, there are many factors that may affect turtle traders. They may have more success if futures or commodities instead of more volatile stocks. Successful trading depends on a trader’s own trading education and psychology. Traders may have success practicing simulated trading on TradingSim to determine for themselves if turtle trading is right for them.

Even though Dennis may not have approved of financial information, TradingSim probably would have been a trusted research source for Dennis and his turtles. With simulated trades on TradingSim, budding turtles can have the best risk management of all with no-risk trades.

Whether turtle trading works now or not, it’s a legendary system that will be studied for generations. Dennis noted that training his turtles was easier and more rewarding than he could have imagined.

“Trading was even more teachable than I imagined. In a strange sort of way, it was almost humbling. ”

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