What is up with turtle trading?
July 30, 2007 12:42 PM   Subscribe

What is turtle trading? Does anyone have experience with turtle trading? Are there any scholarly articles or books that assess it?

For some reason I've been drawn to turtle trading, but I get the nagging feeling that it may be no more than someone pushing chart analysis and other forms of market quackery.

Have turtle traders had long-term success? I'm trying to find information on turtle trading that didn't come from turtle traders themselves, such as an academic or scholarly treatment of the trading system.

Usually I abhor "lowly" chart analysis, but it seems that turtle trading has more in common with behavioral finance and statistical arbitrage than its golden ratio charting brethen.
posted by geoff. to Work & Money (4 answers total) 1 user marked this as a favorite
Info on the turtles and a free report on their trading system here. The entry system is based on a simple breakout but, like a lot of trading systems, the meat of it is in money management. One of the co-founders of the Turtle system lost 50% in his last year before he retired from trading. Does that mean the system no longer works? Dunno, but several of his students are said to still be using the system. Some with tweaks, others without.

Background on the Turtles can be found in the first Market Wizards book but the interviews were not very enlightening. Van Tharp's first edition of Financial Freedom Through Trading (title is something like that, the name escapes me, do a search on amazon--there's two editions but I've only read the first) runs a similar breakout system through many different money management models. Interesting stuff.

And if chart analysis isn't your style, no big deal. Use something that better fits you. Me, I use both technicals and fundamentals for my finances.
posted by Tacodog at 1:19 PM on July 30, 2007

Research trend trading. The use of the word 'turtle' is a bit of a marketing hook. The exact parameters that were used aren't really all that important, although they can be discovered if you're curious. Perhaps those were the best parameters for the 70s but there can be a change in how the breakout is measured, in other words what constitutes a 'trend', without invalidating the logic behind it. There have been a number of traders with long term success whose approach consisted of riding big moves that lasted for months. If you want to do this in futures you should gather a pretty good sized chunk of cash, perhaps low six figures and be prepared for considerable variance. Can it be used in the stock market? Maybe, some claim that it can but there has been less work done here than with futures. You'll have to investigate for yourself. Most trend traders have been individuals instead of institutions, because the drawdowns can be severe. You can find yourself waiting for months or ever over a year for the one big move that will make up some or all of your small losses. Many of those who go bust don't have the monetary and psychological reserves to ride the swings. Will it keep working indefinitely? Maybe, maybe not. As more find out about it and invest money in similar programs, the value of the disproportionately large move will be discounted.

Read Curtis Faith's new book on the Turtles for a more thorough exploration. Avoid Mike Covel's stuff, or at the very least keep reading after you go through his stuff. Do read the Market Wizards books. The section on the Turtles is worthless but the interview with Eckhardt is excellent.
posted by BigSky at 1:39 PM on July 30, 2007

Would like to add that i dont see much diffrence between this, the chartists you dont like and statistical arbitrage. All three are just looking at previous prices and thinking "hey, what have gotten up should rise more" or "what have got up must come down". What you should ask yourself is if you really belive that future price is affected by past price.
posted by ilike at 2:18 AM on July 31, 2007

Right, there's obviously those strict value investors and index fund managers who believe that all the needed information is in the current price and that any variation is going to be Bachelier randomness. It is elegant and beautifuly mathematically but I believe that in the short term there is definite trending in the markets. Whether this can be predicted or is a result of some sort of stochastic process is the big question. In other words, it appears that stock prices show some dependence on previous prices in the short term and a weaker dependence (or global structure) in the long term, but that it is still there.

The question is if you can beat the longs in the short term. Obviously there's going to be a lot of variance between those who seem to find an algorithm that describes the underlying function to how markets move and those who happen to get lucky. I would put the Fibonacci number chartists in the categories of shaman who would lose out if a control study would be possible and the statistical arbitrageurs in the category of being more right about the market.

Nonetheless I picked up the Market Wizards book and a few others, I would have normally not touched them. Turtle trading came at a time when I was starting to feel a little burnt out with some abstract mathematics. It is somewhat refreshing to read trader stories, even if they are not right it is the process that is often more important than the result.
posted by geoff. at 12:09 PM on July 31, 2007

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