In Mid 1983 the Famous speculator Richard Dennis argues with his buddy Bill Eckhardt about whether great traders can be trained, or whether it is an innate ability. To settle the argument of nature versus nurture, they decided to teach 13 beginners to trade, and if they can master the rules, fund them with trading accounts. These beginners are known as the 'Turtles'. Over the next four years, the Turtles earned a collective compound rate of return of over 80%. Argument settled and Turtles trading system started.
'N', the 20 day exponential moving average of the ATR, is used by turtles. It is used under the name'Volatility normalisation'. It is nothing but stating an hypotheses that smaller the trade, every instrument will carry the same monetary risk in times of volatility.
Turtles had 'notional' sized accounts - although an account might notionally start the year at $1,000,000, in the case of a loss of 10%, the size of this account would be reduced by 20%. In other words the trader would have to trade as if he only had $800K, not $900, until such time as the account had got back to the starting figure.
Turtles entered trades based on two different systems,one being a 20 day breakout system, and one a 55 day breakout system. To use the first system, if the market traded during the day or opened thru the 20 day high or low, that would be a signal to enter.One Unit would be bought/sold to initiate the position.If the previous signal would have resulted in a successful trade, this signal would be ignored, in an attempt to avoid 'whipsawing'.
The Turtles trading system would add a single Unit for every 1/2'N' advance once in position. This would be incremented up to the maximum permitted number of units. That is; 4 in a single instrument, 6 in 'Closely Correlated' markets (such as oil and crude), 10 units in 'Loosely Correlated markets and 12 units overall in one direction - CONSISTENCY being the prime directive in all of this. Since most of the trades failed, it was very important to be in ALL of them, otherwise you would miss those few winners which made a huge profit!
Though it requires iron willpower to follow the rules, and not mere try and bend the mechanics of the strategy, the Turtle trading system undoubtedly works. Most people are mentally not equipped to deal with constant losses, though they are handsomely offset by the occasional huge winner.
The source of the turtles trading system is a disagreement between Richard Dennis and Bill Eckhardt. Dennis's theory that people could be taught to trade won out, and this system was born. The system is based on the volatility of trades and risk management. There are also 20 day breakout and 50 day breakout systems. The number of days refers to the high or low over that number of days, and signals a time to trade. The goal of this system is to win consistently. By following the Turtles system exactly, one is almost assured to win.