The Complete Turtle Trader - PursuitOfEdge/books GitHub Wiki

Prince of the Pit

  • Dennis realized managing money wasn't a good idea for him when his account would swing by double digits in a month, and his clients couldn't handle it. Soros withdrew the $2m he invested in Dennis after a -30% drawdown in Mar shown below
1983
Jan 53
Feb -5
Mar -28
Apr 29
May 4
Jun -30
Jul -16
Aug -6
Sep 17
Oct 30
Nov -5
Dec -14

The Turtles

  • "some outstanding traders are quite intelligent, but a few aren't. many outstandingly intelligent people are horrible traders. average intelligence is enough. beyond that, emotionally makeup is more important. this is not rocket science. however it's much easier to learn what you should do in trading than to do it." as with anything in life, most people know the right thing to do, but fail to do it
  • Dennis - when he perceived he had an edge, he would go all in with mammoth size
  • the successful trader is the one who codifies, the one who turns things into rules. every idea that's market-worthy must then be tested

The Philosophy

  • Dennis/Bill wanted to be called scientists before traders
  • Donchian was the father of trend following, 20 week high/low breakouts
  • price-only
  • core axions
    • do not let emotions fluctuate with the up and down of your capital
    • be consistent and even-tempered
    • judge yourself not by the outcome, but by your process
    • know what you are going to do when the market does what it is going to do
    • every now and then the impossible can and will happen
    • know each day what your plan and your contingencies are for the next day
    • what can i win and what can i lose? what are the probabilities of either happening
  • answer these questions at all times
    1. what is the state of the market?
    2. what is the volatility of the market?
    3. what is the equity being traded?
    4. what is the system or trading orientation?
    5. what is the risk aversion of the trader or client?
  • how to handle profits properly is a separation point between winners and losers. great traders adjust their trading to the money they have at any one time
  • traders who face the same opportunity must trade the same. personal feelings can't interfere
  • if the Turtles lost money in a market, they had to move on. accepting and managing losses are a part of their game
  • the Turtles were taught not to fixate on when they entered a market. they were taught to worry about when they will exit
  • don't try to predict how long a trend either up or down will last. it is impossible
  • measuring volatility was critical for the Turtles. most people then and today ignore it in their trading

The Rules

  • it is better to risk taking many small losses than missing one large profit
  • it didn't matter how much the loss was on any one trade, but it was important they limited the loss on the whole portfolio
  • entry: 50d high breakout/low breakdown, 20d (4wk) high breakout/low breakdown
  • exit: 10d (2w) low breakdown/high breakout (opposite of entry)
  • filter: don't take the breakout if the last breakout signal was a winner, but if it was a 2N loss, they could take it
  • system 2: 50d (11wk) breakout
  • put half of the money in each system
  • complicated rules are mental masturbation, math-turbation - Ed Seykota
  • exit: 2*ATR(20) trailing stop or breakout/breakdown exit, whichever happened first
  • position size 2%
  • Jerry Parker noted the best trends initially start at low volatility then breakout to higher volatility
  • pyramid every 1N move up to 5 times, start a 1/2N stop first day, then change to 2N stop
  • every -10% dd => -20% size; 2% -> 1.6% -> 1.28%
  • if you're down -20% dd, you should be trading at about 40%-50% of your original size
  • they traded Futures commodities and currencies
  • tried to pick commodities and currencies that were less correlated so they could use bigger leverage