Turtle Trading Rules for Breakouts, Volatility Sizing, and Exits

Summary

The document explains the Turtle trend following system as a mechanical futures approach intended to limit discretionary decisions. It covers liquid market selection, volatility based sizing using ATR, and Donchian channel breakout entries. A short term system uses 20 day breakouts and filters signals based on the outcome of the preceding breakout; a longer term system uses 55 day breakouts. Positions are increased as price moves favorably by half an ATR, with stops set two ATRs from entry and adjusted as units are added.

Exits use opposing channel breaks: 10 day levels for the short term system and 20 day levels for the longer term system. The article also emphasizes probabilistic thinking, discipline, and risk management. It gives historical claims about the original traders and illustrative calculations, but does not present a controlled backtest of the version described here. Some example details are inconsistent, and the position sizing formula and contract assumptions need careful validation before implementation.

Key ideas

• The Turtle method enters trends when prices break Donchian channel levels.
• ATR is used to scale position size, add on to winners, and set protective stops.
• The short term system uses 20 day entry and 10 day exit channels, while the longer term system uses 55 day entries and 20 day exits.
• The method calls for predefining exits and adding units only as price moves favorably.
• Historical performance claims and the article’s examples do not establish that its described implementation will perform similarly.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.