'Turtle Trading System' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
The Turtle Trading System proved to be a classic system that followed trends. It works by trading on breakouts much like those used in the Donchian Dual Channel System. In this particular method of trading, two breakout figures are important.
The first is a longer 55 day channel breakout point to enter the trade.The second one is a shorter 20 day channel breakout point to exit the position. If the prior trade turned out to be a losing one, then the system employs a dual length method of entering the trade using the shorter 20 day chancel breakout entry point. Stop losses in the Turtle system are set based upon the ATR Average True Range.
This system at first proved to be a secret. In the late 1970s and early 1980s, bits and pieces of classical successful trading systems pioneered by legendary traders Richard Donchian, Jesse Livermore, and Darvas were taken and cleverly combined into what became known as the Secret Turtles Trading System and Rules.
It was Richard Dennis who actually took the new system and created a challenge and test. He wanted to prove that regular individual people could become successful traders if only they had a successful system to follow in trading stocks. He created a class of 14 individuals in 1983 to put this to the test.
Richard Dennis gathered together these 14 regular people who had no stocks or commodities trading experience before joining his mentorship program. He taught them and trained them in the rules of the highly secretive system and program. The class of new traders was then given individual actual dollar accounts so they could trade.
For the next year they traded according to the Turtles Trading Breakout System to prove the point that any people could make money trading if they had the right instructions and a proven system to devotedly follow. At the end of that first year, the experiment demonstrated that the 14 traders had returns which averaged 80%.
Years later after the experiment and program had ended, one of the first Turtles revealed the secrets of the system. Curtis Faith proved to be an original 1983 class Turtle Trader and he unveiled the now not so secret Turtle Trading Rules to Wall Street and general investors on his site www.OriginalTurtles.org. This is how it came out that the system utilized trend following in its proven approach.
It was this website that at last shared the rules of the Turtles Trading System with the world. The rules fell under four main sections of theories for highly profitable trading. The first one was position sizing. This taught would be traders how to know the right amount to buy and sell in a particular trade.
The second set of rules pertained to entry points. They showed traders the best way to know how to time trades. They taught the method for knowing when and at what price level to get into the trade in the first place.
The third group of instructions gave details on how to set stop loss levels. No mater how many successful trades the system provides, it must manage its losses. No system is right all of the time. This is why it is critical to have price levels at which to takes losses and exit out of a losing position.
Finally the system had a section of rules on profitable exit points. Winning positions could not be left to run forever. A point came when it was the optimal time for traders to take their profits. These rules set out the right price levels to cash out of winning positions. Both stop loss and profitable exit points were based on formulas that worked off of the Average True Range.
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