Turtling

What the Heck is Turtling in Trading? (And Why Should You Care?)

Alright, let's talk about something that sounds ridiculously cute but can be a real strategy in the wild world of trading: Turtling. No, we're not talking about actual turtles, sadly. This is about a specific, systematic approach to trading that gained serious traction back in the 80s.

The Turtle Trading Experiment: A Quick Backstory

Picture this: Two trading titans, Richard Dennis and William Eckhardt, had a fundamental disagreement. Dennis believed anyone could be taught to trade successfully with the right rules. Eckhardt, on the other hand, thought trading was more of an innate talent, something you're born with. To settle this debate, they ran an experiment. They recruited a group of complete novices, taught them a set of specific rules, and gave them real money to trade with. These novices became known as the "Turtles."

So, What Were the Turtle Trading Rules?

This is the juicy part! The Turtle trading system was all about following a precise set of guidelines. It wasn't about gut feelings or intuition. It was a mechanical system based on trend following. Here's a simplified breakdown:

• Markets: The Turtles traded a wide range of liquid markets, including currencies, metals, and agricultural commodities.
• Entry Signals: They used two primary systems (System 1 and System 2), triggered by breakouts. System 1 focused on shorter-term breakouts (e.g., a 20-day high or low), while System 2 used longer-term breakouts (e.g., a 55-day high or low).
• Position Sizing: This was crucial. The Turtles used a formula to determine the size of their positions based on the market's volatility (measured by the Average True Range or ATR) and their account equity. This helped them manage risk and ensure they weren't overexposed to any single trade.
• Stop-Loss Orders: Strict stop-loss orders were implemented to limit losses on each trade. These were typically set a certain number of ATRs away from the entry price.
• Adding to Positions (Pyramiding): If a trade moved in their favor, the Turtles would add to their position, increasing their potential profit.
• Exits: Similar to entries, exits were also rule-based, typically triggered by breakouts in the opposite direction.

A (Very) Simplified Example

Imagine a stock trading range-bound for weeks. Suddenly, it breaks above its 20-day high. A Turtle might enter a long position. They'd calculate their position size based on volatility and their account, set a stop-loss, and potentially add to the position if the stock continues to rise.

Why Did Turtling Work (And Does it Still?)

The Turtle system worked because it capitalized on trends. Trends, by their nature, can be predictable to some extent. The system's emphasis on risk management (position sizing and stop-losses) prevented significant losses and allowed them to stay in the game long enough to profit from these trends. The diversification across multiple markets also helped.

However, the markets have changed since the 80s. With the rise of algorithmic trading and increased market efficiency, trends can be shorter-lived and more difficult to identify. While the original Turtle system might not work *exactly* as it did back then, the underlying principles of trend following, risk management, and disciplined execution remain relevant.

The Pros and Cons of a Turtle-Like Approach

Pros	Cons
Removes emotional decision-making	Requires significant backtesting and optimization for current markets
Emphasis on risk management	Can be difficult to adapt to rapidly changing market conditions
Potential for high returns in trending markets	Can result in numerous small losses during periods of consolidation
Provides a clear framework for trading	May miss opportunities outside the predefined rules

Is Turtling Right for You?

That depends! If you're looking for a systematic, rule-based approach to trading and you're comfortable with the idea of following trends and managing risk, then it might be worth exploring. However, it's crucial to remember that no trading system is foolproof. Thorough backtesting, risk management, and adaptation to current market conditions are essential for success.

Key Takeaways

The Turtle trading experiment demonstrated that trading skills can be taught. While the exact rules may need to be adapted for today's markets, the core principles of trend following, risk management, and disciplined execution remain valuable lessons for any aspiring trader. Don't just dive in headfirst; do your research and understand the risks involved.

Keywords

• Turtle Trading
• Trend Following
• Richard Dennis
• William Eckhardt
• Trading System
• Risk Management
• Position Sizing
• ATR (Average True Range)
• Breakout Trading

Frequently Asked Questions (FAQs)

Q: Was the Turtle experiment successful?

A: Yes, overall. The original Turtles generated significant profits for Dennis and Eckhardt. However, individual results varied.

Q: Can I just copy the Turtle rules and become a millionaire?

A: Highly unlikely. Market conditions have changed significantly since the 1980s. The original rules need to be adapted and optimized for today's markets.

Q: What's the most important aspect of the Turtle system?

A: Many would argue it's risk management. Position sizing and stop-loss orders are crucial for protecting capital and avoiding catastrophic losses.

Q: Is Turtling suitable for beginners?

A: While the rules are relatively straightforward, it requires discipline and a good understanding of market dynamics. Beginners should start with smaller positions and thoroughly understand the risks before committing significant capital.

Q: Where can I learn more about Turtle trading?

A: There are several books and articles available online, including "The Complete TurtleTrader" by Michael Covel. Just be sure to approach any information with a critical eye.

Definition and meaning of Turtling

What is Turtling?

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