The rules of the free turtle system, isn't it a joke?

Why distribute the Turtles rules for free that others have paid thousands of dollars for? Are these the original Turtles rules?
You've probably asked yourself the same question, "why would anyone want to give away the original turtle rules for free?" How can I
be sure that these are the original rules of Richard Dennis and William Eckhard's system? The answer to these questions at the origin of
the project...

The origin of the free turtle rules project

The free publication of the turtle rules has its origin in several discussions between some of the original turtles, Richard Dennis and
some other people regarding the sale of the turtle speculation system for a turtle and subsequently the creation of a website by a non-
speculator. Finally it was decided to create this document, which reveals the original turtle rules in their entirety, completely free of
charge.
Why? Because many of the turtles understood that they had a debt to Richard Dennis and an obligation not to reveal the turtles' secrets
even though the 10-year intellectual property contract expired at the end of 1993. For this reason, it didn't seem right to the turtles that
one of them wanted to sell the secrets.
Furthermore, the turtles consider the sale of the system as a crime against intellectual property and a theft that, although not illegal, was
dishonest.
At the same time seeing that many people were going to follow the rules firsthand, the turtles realized that the publication would result
in many people trying to operate like the turtles and those who spent a lot of time learning this system would end up discouraged for
the following reasons:
• The rules of the turtles would not be clear because the people who tried to sell them would be those who did not know how to
operate in the market.

• Even if clear rules were presented, buyers of the system would not be able to follow them.

• Most Turtles Are Operating Today With Even Better Rules

The harsh reality about trading system vendors
I have been trading and speculating since high school. One of the harsh realities of the trading industry and futures trading systems in
particular is that there are more people selling other people 's systems and ways to "get rich in the stock market" than there are people
actually making money on their trades.
I won't go into too much detail but those of us who actually speculate for a living know the names of "famous speculators" who are
famous as speculators but don't make money speculating. They make money by selling speculation systems, seminars, home study
courses, etc. Many so-called "celebrity scalpers" do not and cannot trade the systems they sell.
So this is also true for those who sell the turtle system. Consider the following: first a website.
Turtletrader.com and second a turtle. This is what they won't tell you:
Turtletrader.com. A website managed by one person (of recognized marketing talent who also owns an on-line pharmacy) line and
another website that sells personality tests). Turtletrader.com claims to have the current turtle system rules and will sell them to you for
$999.00. The website is filled with tremendous amounts of information about trading and bills itself as "the #1 source for trend
following systems in the world."
What they don't tell you is that the website is run by a person who does not himself speculate on the rules he sells and has never been a
successful scalper. And he still boasts of being an expert in "trend following systems in the world."
On this website you can get something close to the current turtle rules but you won't find any expert advice from the person selling it
Turtletrader.com is not better than other systems, it is a system sold by a person who is more interested in taking money from his
clients than in succeeding using the system he sells, he calls himself an expert in "trend following systems" but he does not say that
does not operate.
The "money back guaranteed" clause is of no use because you must keep a record of all trades and prove that you followed the rules by
showing the records provided by the broker. If you don't like the rules and want your money back, it seems pretty unlikely to me that
you would open an account and operate for a year to get it back.
This "turtle" did not last a year in the turtle program as he was fired for his inability to follow the rules of the system. He lost money
when most of the other turtles were making money.

You need to follow the rules

What turtletrader doesn't realize is that scalping rules are only a small part of successful scalping. The most important aspects are
confidence, consistency and discipline.
Rules you can't or won't follow won't help you much.
The turtles had plenty of reasons to trust the rules they were given. They had the confidence to follow the rules even during periods of
losses. Those who did not follow the rules did not earn any money and were eliminated from the program.
Speculators who want to succeed must find a way to gain enough confidence in their own trading rules to be able to apply them
consistently.
We as turtles had it easy. We were given the rules by one of the most famous and successful traders. Richard Dennis and his colleague
Bill Eckhard taught us the rules and the reasons why we might trust these rules. In some cases it was easier to follow the rules than not
to follow them.
At other times we had the confidence and discipline to consistently apply the rules we were given. This was the secret of our success
as speculators .
Those who failed to follow the rules inevitably failed like turtles. Some realized that they could make more money selling the rules
than operating them.

The birth of the project

I, like a good portion of the turtles, were quite upset that others made money from the work of Richard Dennis and Bill Eckhard
without their consent and that these "secret sellers" had used the success of the turtles to encourage others to spend thousands of dollars
on products that were not what they seemed.
I thought one way to fight this fraud was to give out the turtle rules for free. While others would have the option of purchasing the rules
if they really wanted them, for me it wasn't violating my feeling of fair play by revealing them.
When a speculator friend of mine, Arthur Maddock, told me about his ideas for a new site that had the turtle rules, he was interested in
scalping systems (the turtle system being the most famous of these systems). I was suggesting that you could differentiate this website
by giving the turtle system rules for free. Therefore in the end we decided to create a new site without commercial ties.
Arthur shares my interest in the speculation industry and in removing the "magic elixir" veneer it has. For that reason we think that
giving the rules for free and revealing the truth about those who have been selling the system would ultimately end the practice of
selling the system as a way to make money.
This is what we did but with a small change...
While the rules were free we asked those who benefit from the rules and find them valuable to send a small donation to a charity in
honor of Richard Dennis, Bill Eckhard and the original Turtles. A list of the turtles' chosen charities can be found at originalturtles.com
Curtis Faith, an "original" turtle.
Are great speculators born or made?
This was the question to which Richard Dennis (professional speculator) wanted to find an answer. In 1983 Dennis had an argument
with his friend Bill Eckhardt about whether great speculators are born that way or can be trained to be that way. Richard thought he
could teach people how to become successful speculators while Bill thought genetics and aptitude were the determining factors.
Richard thought that the best thing would be to do the experiment by hiring and training some traders, and giving them real accounts
with real money to see which of the two was right based on the results.
They placed an ad in Barron's, the Wall Street Journal and the New York Times. The announcement said that after a few training
sessions the selected people would have an account with real money to operate with.
Since Dennis at the time was probably the most famous speculator in the world, they received over 1,000 applications. Of the 1000
they interviewed 80.
A group of 10 people was formed, which eventually became 13 after Richard added 3 more people that he knew personally before the
experiment.
They were paid for their trip to Chicago and trained for 2 weeks at the end of December 1983 and began trading small live accounts at
the beginning of January 1984. After the initial trial, Richard provided them with between $500,000 and $2,000,000 in early February.
The students were known as "the turtles" because when Dennis started the experiment he had just returned from a trip to Asia and
explained the program by saying "we are going to grow traders like they grow turtles in Singapore."
The turtle experiment became the most famous in the history of professional speculation because in the next 4 years "the turtles"
obtained an annualized return of 80%.
Richard showed that speculating can be taught, he proved that with a very simple set of rules he could turn people with no trading
experience into excellent speculators.

The complete speculation system

The turtles received a complete speculation system. It covered all aspects and left no room for the user's subjectivity.
The most successful scalpers use a mechanical system. It's no coincidence that Dennis provided a complete system for his turtles.
A good system automates the entire trading process. The system provides an answer for each of the decisions that the speculator must
make while trading.
The mechanics of trading could not be left to the judgment of the novice speculator.
If you know that a system provides profits over a long enough trial period it is easier to follow the signals and trade according to the
system during periods of losses. If you rely on your own judgment during the trading process you will find that you should have been
courageous when you were afraid and that you should have been cautious when it was too risky.
The components of a complete trading system are:
Market - what to buy or sell. The first decision was which markets to operate with. If you operate in too many markets the chances of
catching a complete trend are reduced, on the other hand you do not want to operate in markets with little trading volume or that do not
have a trend.
Position size – how much to buy or sell. This is an aspect ignored by many novice speculators. How much to buy or sell
simultaneously affects diversification and risk management. Diversification attempts to spread the risk across several operations so that
there is a greater chance of capturing a highly profitable operation. Proper diversification requires similar sized trades in different
markets or securities. Risk management is controlling the size of trades so that we do not run out of liquidity when the truly profitable
trades arrive.
How much to buy or sell is the single most important aspect of trading. Most beginners risk too much in each trade increasing the
chances of bankruptcy even if they have a valid scalping style.
Entry - when to buy or sell. The decision of when to enter the market is called the "entry decision." The automatic system provided
the exact price and exact market conditions to enter, whether long or short.
Stops - when to exit a losing position. Speculators who do not want to close their losses quickly will not succeed in the long term.
The most important thing about cutting losses quickly is to determine the point where you will exit the position BEFORE making the
entry.
Exits - when to exit a winning position. Many systems do not specify when to exit a winning position even though this exit is crucial
to the profitability of the system. A system that does not include profit stops is not a complete system.
Tactics - how to buy or sell. Once the signal has been generated (buy or sell), tactics involving the mechanics of signal execution
become important for high capital accounts since entries or exits could move the market.
The markets in which the turtles operated
"The Turtles" were futures traders in the USA. Since they were assigned accounts worth millions of dollars they could not operate in
narrow markets that only supported a few contracts a day since the orders would move the market making it impossible to enter and
exit without having to take large losses. Turtles were restricted to trading only in the most liquid markets. In general, the turtles
operated in the US raw materials markets with the exception of grains and meat.
The grain market was restricted because Richard Dennis was trading it with a lot of volume on his own account and the turtles could
not be allowed to trade at the same time as the market limits for positions would be exceeded.
The Meat market was also restricted due to a problem of corruption among the trading floor operators in the rings. The FBI was
conducting an investigation into the Chicago Meat Market and had prosecuted several stock traders, so Dennis preferred that "the
turtles" not operate in meat.
The following list contains the markets that turtles were allowed to operate in:
CBOE : 30-year treasury bond, 10-year treasury bond
New York : Coffee, Cocoa, Sugar, Cotton
Chicago Mercantile Exchange : Swiss franc, German mark, pound, French franc, Yen, Canadian dollar, SP500 index, Eurodollar, 90-
day treasury bond
Comex : Gold, silver and copper
New York Mercantile exchange : Crude oil, Gas,
The turtles were asked to trade in the markets on the list. But if a trader did not have positions in a particular market then he was not
allowed to trade any other futures in that same market. The turtles were required to operate consistently.
The volume of operations
The turtles used a method based on volatility and which provided them with a constant and defined risk.
The Turtles used a position sizing method that was very advanced for its time because it normalized the volatility of the risked capital
based on the volatility of the market. In other words, this means that a position could tend to move up or down the same amount of
dollars regardless of the underlying volatility of the market. This is because positions in markets that move up or down a large amount
per contract would have a smaller number of contracts associated with them than those positions in markets with greater volatility.
This normalization of volatility is very important because it means that different positions in different markets tend to have the same
probabilities of a given, fixed capital loss. This increased effectiveness by diversifying between markets. In the event that the volatility
of a particular market was small, any movement would result in a significant profit because the turtles would have held more contracts
than in another more volatile market.

Volatility. The meaning of the parameter N

The turtles used a concept that Richard Dennis and Bill Eckhardt called N to represent the underlying volatility of a particular market.
N is simply the 20-day exponential mean of the True Range which is currently known as ATR or Average True Range. Conceptually N
represents the average movement that a market makes in a day, taking into account the gaps. N is measured at the same points as the
underlying contract. In Visual Chart and other programs we have this indicator available as "Average True Range" and by selecting it
we can choose the period, which in this case is 20.
To calculate the True Range the formula is used:
True Range = Maximum[ HL, H-PDC , PDC-L ]
Where:
• H-High (maximum)
• L-Low (minimum)
• PDC-Previous DayClose (the close of the previous day)
To calculate N the formula is used:
(19 * PDN + TR )
N= 20

Where:
• PDN-Previous Day N
• TR- Current Day True Range
Since this formula needs the value of N from the previous day, you must start with a 20-day moving average of the True Range to
begin calculating.

Capital volatility adjustment

The first step in determining the position size was to determine the capital volatility (in the following example in dollars) represented
by the underlying volatility of the market (defined by the N).
It sounds more complicated than it really is, it is determined with the following simple formula:
Capital volatility = N * Dollars per position
Position Adjusted Volatility
The turtles operated with positions in portions that they called Units. The units were sized so that 1 N represented 1% of the available
capital.
Thus, for a particular market the Units were calculated like this:
1% of capital
Unit =
market volatility
or also 1% of capital
N*market dollars
Unit =
Example
Example considering the following prices, True range and value of N of heating fuel prices in 2002
Day High Low Closing true range N
11-1-2002 0.7220 0.7124 0.7124 0.0096 0.0134
11-4-2002 0.7170 0.7073 0.7073 0.0097 0.0132
11-5-2002 0.7099 0.6923 0.6923 0.0176 0.0134
11-6-2002 0.6930 0.6800 0.6838 0.0130 0.0134
11-7-2002 0.6960 0.6736 0.6736 0.0224 0.0139
11-8-2002 0.6820 0.6706 0.6706 0.0114 0.0137
11-11-2002 0.6820 0.6710 0.6710 0.0114 0.0136
11-12-2002 0.6795 0.6720 0.6744 0.0085 0.0134
11-13-2002 0.6760 0.6550 0.6616 0.0210 0.0138
11-14-2002 0.6650 0.6585 0.6627 0.0065 0.0134
11-15-2002 0.6701 0.6620 0.6701 0.0081 0.0131
11-18-2002 0.6965 0.6750 0.6965 0.0264 0.0138
11-19-2002 0.7065 0.6944 0.6944 0.0121 0.0137
11-20-2002 0.7115 0.6944 0.7087 0.0171 0.0139
11-21-2002 0.7168 0.7100 0.7124 0.0081 0.0136
11-22-2002 0.7265 0.7120 0.7265 0.0145 0.0136
11-25-2002 0.7265 0.7098 0.7098 0.0167 0.0138
11-26-2002 0.7184 0.7110 0.7184 0.0086 0.0135
11-27-2002 0.7280 0.7200 0.7228 0.0098 0.0133
12-2-2002 0.7375 0.7227 0.7359 0.0148 0.0134
12-3-2002 0.7447 0.7310 0.7359 0.0137 0.0134
12-4-2002 0.7420 0.7140 0.7162 0.0280 0.0141
The price per unit for December 6, 2002 (using the value N 0.0141 on December 4) is the following: Heating Fuel
N= 0.0141
Account volume = $1,000,000
Dollars per position = 42 (price at which the gallon of fuel was valued in dollars)
1% of capital
Unit =
N*market dollars

0.01 * 1.000.000 $
Unit = 0.0141 * 42 = 16.88
As in this case it is not possible to execute operations by portions of the contract, the operations will be executed with 16 contracts.
You will ask: How many times is it necessary to calculate the value of N and the volume of contracts or operations? The turtles
received the list with the values of N and the size to operate every Monday of each week in which they had to operate.
The importance of position size
When we talk about diversification, it is understood as an attempt to disperse the risk between different operations and also increase the
probabilities of taking a truly profitable operation. To diversify properly you have to make identical bets on totally different
instruments.
The turtles used market volatility to measure the risk associated with each market. This measure of risk was used to build positions in
capital increases with a constant increase in risk or volatility. This increases the benefits of diversification and increases the likelihood
that good trades will offset bad ones.
It is important to highlight that this diversification is more difficult to achieve if you do not have enough capital for trading.
Units as a risk measure
The turtles used Units as a basis for position size, and these units were risk-adjusted for volatility; the Unit was a measure
simultaneously of position size and risk.
The turtles were given capital management rules that limited the number of units that could be committed at any given time, at four
different levels. These rules minimized losses in unfavorable periods.
The limits were the following:
Level Guy Maximum Units
1 In a single market 4 units
2 Highly correlated markets 6 units
3 Low correlated markets 10 units
4 In one direction (long or short) 12 units
In the case of highly correlated markets, only 6 Units were allowed in a particular direction (long or short, for example bought 6 units
or sold 6 units). Highly correlated markets include: Gold and Silver, Crude Oil and Gas, Swiss Franc and Deutsche Mark (at the time),
Eurodollar and Treasury Bonds.
In the case of poorly correlated markets there would be a maximum of 10 units in a given direction. Poorly correlated markets include:
gold and copper, silver and copper, and many combinations of Cereals and Grain that the turtles could not trade.
The absolute maximum in a single long or short direction was 12 units. Thus, one could be buying or selling a maximum of 12 units
simultaneously. .
The turtles said they were "loaded" when they were operating with the maximum number of units for a given risk level. Thus, "loaded
in the Yen" meant operating in the Yen with 4 units. "Fully loaded" meant they were operating with all 12 units.

Adjusting the size of positions

The turtles did not have normal accounts with a balance equal to the liquidity of the account. Instead they had an account that
theoretically started with $1,000,000 in February 1983. At the beginning of each year the calculation they made about the size of their
account was adjusted depending on the success or failure of the turtle.
The turtles were asked to decrease their account size calculation by 20% each time they lost 10% of their original account. That is, if a
turtle trading with 1 million dollars lost 10% (or $100,000) then they should operate as if they had an account of $800,000 until the
beginning of the new year where the adjustment would be made. If they lost another 10% (10% of $800,000 or $80,000 which added to
the above is a loss of $180,000) then they would have to reduce the size of the account another 20% to have a nominal account of
$640,000.
These are the risk control rules that the turtles used. There are other rules, perhaps better ones, but these were the simple rules the
turtles used.

Entrances to the Market

The turtles used two entry systems, both systems based on a Donchian channel breach system.
A normal investor or speculator normally thinks of market entries as a speculation system. He believes that input is the most important
aspect of the system.
Many traders are surprised to see that the turtles used a very simple system based on the Donchian channel break.
The turtles were given two different but similar systems since they were based on the same principle and which we will call system 1
and system 2. They were allowed complete freedom in allocating capital to the system they preferred. Some chose to operate all the
capital with system 2, others with system 1, others used 50% of each system or even different percentages.
• System 1 – System 1 is short-term based on a 20-day breakout
 • System 2 – System 2 is long-term based on a 55-day break

The breaks
Breakout is defined as the price exceeding the high or low of a particular number of days. Thus a 20-day breakout is defined as
exceeding the maximum or minimum of the last 20 days.
The turtles always traded the break when it was broken during the day and did not wait for a close or the opening of the next day. In
case of opening gaps , the turtles entered positions if the market opened above the breakout level.
Entries with system 1:
The turtles entered positions when the price exceeded the maximum or minimum of the last 20 days by a single tick. If the price
exceeded the maximum of the last 20 days then the turtles bought one Unit to initiate a long position in the corresponding commodity.
If the price fell just one tick below the low of the last 20 days the turtles would sell one Unit to initiate a short position.
The breakout entry signal from system 1 would be ignored if the last breakout has resulted in a winning trade.
The breakout was considered false if the price after the breakout moved 2N against the position before a 10-day profit exit. In reality
the direction of the break was irrelevant. Thus, a false breakout to the upside or a false breakout to the downside would cause the next
breakout to be taken as valid regardless of the direction (long or short).
In any case, if system 1 skipped an entry because the previous trade had been a winner, an entry could be made at the 55-day break
(system 2) to avoid missing a larger trend. Thus the entry of 55 was considered “entry due to false breakage”
At any given time if the turtles were out of the market there was always a price level that would trigger a short signal and a price above
this that would trigger a long entry. If the last breakout was false then the next entry would be closer to the current price (eg break of
20 days) than if it had resulted in profit since in that case the entry would be further away, specifically at the break of 55 days.
Entries with system 2:
It was entered when the price exceeded the maximum or minimum of the last 55 days by a single tick. If the price exceeded the
maximum of the last 55 days then the turtles bought one Unit to initiate a long position in the corresponding commodity.
If the price fell just one tick below the minimum of the last 55 days the turtles would sell one Unit to initiate a short position.
All system 2 breaks would be taken regardless of whether the previous trade resulted in profit or not.
Adding units
The turtles operated a single unit at the beginning of the operation at the break and then added in ½ N intervals following the initial
input. Thus the ½ N interval was based on the buy (or sell) price of the previous order. If an entry was shifted more than ½ N then the
new order would be 1 N above the break, to account for the ½ N shift plus the ½ N normal range.
This would continue up to the maximum number of Units allowed. If the market moved very quickly it was possible to add up to the
maximum of 4 Units in a single day.

Example with Gold:

N=2.50
55 day break = 310

First Unit: 310

Second Unit: 310 + ½ 2.50 = 311.25
Third Unit: 311.25 + ½ 2.50 = 312.50 Fourth Unit: 312.50 + ½ 2.50 = 313.75
Example with Oil:
N=1.2
55 day break = 28.30

First Unit: 28.30

Second Unit: 28.30 + ½ 2.50 = 311.25
Third Unit: 28.30 + ½ 2.50 = 312.50
Fourth Unit: 28.30 + ½ 2.50 = 313.75

Insistence
The turtles were required to be very consistent in taking entry signals because most of the year's profits would come from just two or
three big winning trades. If a signal was missed or skipped it could tremendously affect the results for the year.
The turtles obtained the best results by consciously insisting on applying the entry rules. The turtles with the worst results were those
that skipped the most entries or failed to track them.

The Stops
Turtles used N -based stops to control risk and avoid large capital losses.
There is an expression in English "Ther are old traders; and there are bold traders but there are no old bold traders."
Turtles always used stops. For many people it is easier to think that a loss will turn around and turn into a profit over time than to
simply exit the position and admit that the entry was incorrect.
Getting out of a losing position is absolutely critical. Speculators who do not nip losses in the bud will not succeed in the long term.
Almost all of the examples of runaway trading that ended to the detriment of the institution (such as the bankruptcy of Barings, Long-
term Capital Management and others) involved trades in which losses were allowed to advance rather than cut short. when it was only
minor losses.
The most important aspect about cutting losses is to have your exit point predefined before entering the position. If the market moves
to the exit point it is necessary to execute the loss without exceptions, every time. Breaking this rule will end in disaster .

The Turtle Stops

Just because the turtles operated with Stops does not mean that they always had it included in the market.
The turtles operated with large capital positions and did not want to reveal their strategies nor did they want the brokers to know the
point where they had placed the stop. The turtles used a reference price that if reached made them exit the positions using limit or
market price orders.
These stops were non-negotiable exits. If a commodity was trading at the stop level, the position was abandoned, every time, without
exceptions.
Placing the Stops
The turtles placed their stops based on the risk of the position. No operation was to have a risk greater than 2%. Since 1N represented a
capital movement of 1%, the maximum stop of 2N would allow a maximum risk of 2%. The turtle stops were placed at 2N below the
entry point and 2N above in the case of short positions.
In order to keep the risk of the positions at a minimum, if Units were added, the stops for new Units were raised by an amount of ½ N.
This usually meant that the stop on the entire position was placed 2N from the most recent Unit. In cases where the market moved very
quickly or there were gaps, the last Units were placed with a greater separation and with the consequent difference in the stops.
For example:
Petroleum:
N=1.20
55 day break = 28.30

Entry price Stop

First unit 28.30 25.90

First unit 28.30 26.50

Second unity 28.90 26.50

First unit 28.30 27.10

Second unity 28.90 27.10

Third unit 29.50 27.10

First unit 28.30 27.70

Second unity 28.90 27.70

Third unit 29.50 27.70

Fourth Unit 30.10 27.70

In the event that the fourth Unit was added at a higher price because the market opened with a gap at 30.80
First unit 28.30 27.70

Second unity 28.90 27.70

Third unit 29.50 27.70

Fourth Unit 30.80 28.40

The Alternative Strategy to Stops: Whipsaw

The turtles were taught an alternative strategy that was more profitable but was also more difficult to execute because many more
losses were incurred resulting in a poorer profit/loss ratio. This strategy was called "Whipsaw" naming small market swings.
Instead of taking a 2% risk per trade, the stops were placed at ½ N for a ½% risk in the account. If the stop was triggered on a unit, the
Unit would trade again if the market reached the original entry price again. Some turtles operated with this method with good results.
The Whipsaw strategy had the additional benefit that it did not require the movement of stops for the new Units that were added since
the total risk never exceeded 2% at the maximum of the four Units.
For example using Whipsaw stops the entries for Crude would have been:

Entry price Stop

First unit 28.30 27.70
First unit 28.30 27.70
Second unity 28.90 28.30

First unit 28.30 27.70

Second unity 28.90 28.30

Third unit 29.50 28.90

First unit 28.30 27.70

Second unity 28.90 28.30

Third unit 29.50 28.90

Fourth Unit 30.10 29.50

Benefits of trading with Stops
The turtles' operations were based on N, therefore adjusted to market volatility. The more volatile markets had looser stops but also had
fewer contracts per Unit. This equalized risk between different operations and offered better diversification and a more robust risk
management system.
 Outputs
The turtles used an exit system based on breaking previous levels to profitably exit their positions.
There is a motto in the markets that is the following: "you can't go bankrupt by taking profits." The turtles would not agree with that
motto. Exiting winning positions too early to take a small profit is one of the most common mistakes when trading trend following
systems.
The price never moves in a straight line, therefore it is necessary to let the prices move against our entry if we want to catch the trend.
This translates to seeing how gains of between 10 and 30% can turn into a small loss at the beginning of a trend. In the middle of a
trend this can translate into profits between 80 and 100% or a reduction of 30 or 40%. The temptation to close the position at a profit
can be enormous.
The turtles knew that the point at which the profit is taken can make the difference between winning and losing.
The turtle system executes its entry at the break of levels. Most trades do not result in a trend which implies that most trades end in
losses. If the winning trades did not make enough profit to offset the losses, the turtles would have lost money. Each speculation
system has an optimal exit point that is different in each case.
Let's consider the turtle system, if you exit winning positions at 1N profit while exiting losing positions at 2N then twice as many
winning trades as losing ones would be needed to compensate.
There is a complex relationship between all the components of a speculation system. This means that the exit system should not be
considered without having taken into account the entry system, risk and capital management among other factors.
A proper exit from winning positions is one of the most important aspects of a trading system and the least considered. It can make the
difference between winning and losing.

Turtles and their exit system

System 1 had an exit with the minimum of the last 10 days for long positions and with the maximum of the last 10 days for short
positions. All Units would be closed if the price went against the positions with a break of 10 day highs or lows.
System 2 had an exit with the minimum of the last 20 days for long positions and with the maximum of the last 20 days for short
positions. All Units would be closed if the price went against the positions with a break of 20 day highs or lows.
Just as they did with stop losses, the turtles did not have the exit order placed in the market but instead monitored the market during the
day and if there was a breakout they called to close the positions.

The difficulty of exits

For most speculators the turtle exit system was the most difficult part of all the rules to execute. Waiting for a new 10- or 20-day low
could mean seeing 20, 40, or even 100% gains evaporate.
There is a real tendency to want to exit positions too early. It takes a lot of discipline to watch your profits evaporate and hold your
positions for the next big trend. The ability to maintain discipline and obey the rules during high-profit trades is what separates
successful scalpers from the rest.

Tactics
Miscellaneous rules to fill out the rest of the turtle rules.
The famous architect Mier Van der Rohe, speaking about design once said: "God is in the details", exactly the same as in Trading
techniques.
There are small details that can make a difference in obtaining benefits when applying turtle techniques.
Executing the orders
As we mentioned earlier, Richard Dennis and William Eckhardt asked the turtles not to use stops when executing orders in the market.
The turtles watched the market and then entered orders when the market touched the set stop price.
They were also told that it was better to enter limit orders than market orders, this is because limit orders offer more possibilities of
being activated at a better price and with a smaller range than market orders.
Markets always have a supply price and a demand price. The bid price is the price at which buyers are willing to buy and the ask price
is the price at which sellers are willing to sell. If at a certain time the bid price becomes higher than the ask price the transaction is
closed. A market order is always executed at the bid or ask price when there is sufficient volume, and sometimes at worse prices for a
large number of securities.
Typically there is a large amount of random price fluctuation which is known as a "jump". The idea behind using limit orders is to
place the trade at the lower limit of the jump instead of simply entering a market order. A limit order will not move the market if it is a
small order and will almost always move the market less if it is a large order.
It takes a lot of skill to be able to determine the best price for a limit order but with practice you should be able to get better prices
using limit orders near the market than using market orders.
In volatile markets
Sometimes the market moves and fluctuates very quickly and if a limit order is entered it is not executed. During a very fast market
thousands of dollars can be moved per contract in a few minutes.
At these times the turtles were asked to remain calm and wait for the market to stabilize before entering orders.
The vast majority of beginners find this rule very difficult to follow. They panic and enter market orders. They invariably do so at the
worst possible price and frequently end the day by entering highs or lows at the worst possible price.
In very fast markets liquidity is temporarily exhausted. In the case of a very rapid bull market, sellers stop selling and wait for a higher
price and will not start selling again until the price stops rising. In this scenario, demand rises considerably and the gap between supply
and demand widens.
Buyers are forced to pay higher prices while sellers continue to raise the ask price and the price moves so fast and so much that new
sellers come to the market causing the price to stabilize and sometimes even turn it around, pushing it back. of the rise.
Market orders entered in a fast market usually end up being filled at the highest price of the rally, right at the point where the market
begins to stabilize as new sellers arrive.
The turtles would wait until they found some indication that at least a temporary price reversal had occurred before entering orders, and
by doing so they usually got better prices than they would have gotten from the market. If the market stabilized past the stop price, the
turtles would exit the market but calmly.
Simultaneous operations
Many days there was very little movement in the market and therefore little to do other than check the monitors. The turtles could go
several days without placing any orders in the market. Other days the turtles were relatively busy with signals occurring intermittently
every few hours. In that case, the turtles executed the orders as they came until they reached the limit position for the markets in which
they operated.
There were also days when it seemed like everything was going to happen at once and turtles would go from having no open positions
to being "loaded" in a day or two. Sometimes this rhythm was intensified by multiple signals in correlated markets.
This occurred especially when the markets opened with gaps through the entry signals of the turtles in Crude Oil, GAS, etc. all on the
same day. Working with futures it was quite common for all signals to be activated at the same time in the same market.
Trading in strong and weak markets
If the signals appeared all at once, the turtles bought in the strongest markets and sold in the weakest markets of the group.
Only one Unit was introduced into a market at a time. For example, instead of buying Heating Oil contracts for February, March and
April simultaneously, they chose to buy the most liquid, strongest contract and with the most trading volume.
This information is very important, within a correlated group the best long positions are in the strongest markets (which always
perform better than the weak markets of the same group). Conversely, the best winning positions on the short side come from the
weakest markets in the group.
The turtles used various ways to measure market strength and weakness. The simplest method was to look at the graph and observe
which seemed stronger or weaker simply by visual inspection.
Others looked at how much N the price had advanced since the breakout and bought the markets that had moved the most in terms of
N.
Others subtracted the price three months ago from the current price and divided it by the current N to normalize between different
markets. The strongest markets would thus have the highest values and the weakest markets would have the lowest.
Any of the indicated approaches worked well. The important thing was to have long positions in the stronger markets and short
positions in the weaker markets.

At the end of the contracts

When futures contracts were terminated there were two factors to consider before rolling them into a new contract.
1 .- On many occasions the contracts for the nearby months gave a good trend but the more distant months failed to have a similar
price movement. Therefore it was not "rolled over" to a new contract unless the price action had resulted in an exit from the position.
2 .- Contracts would be rolled before volume and open interest decreased significantly. The amount depended on the size of the Unit.
As a general rule, turtles would roll existing positions into a new contract a few weeks before the expiration date unless the nearest
month of the current contract was performing much better than contracts with further expirations.

Finally
This concludes the rules of the turtle system. You probably think that these rules are not too extensive.
But knowing these rules is enough to achieve good results. The only thing you have to do is follow them faithfully. Remember Richard
Dennis said, "I could publish my speculation rules in the newspaper and no one would follow them. The secret is consistency and
discipline. Almost everyone can make a list of rules that are 80% as good as the ones we teach the turtles. "What people don't often do
is be confident enough to stick to the rules even when things get bad." Quote from "Market Wizards", Jack. d. Schwager.
Perhaps the best evidence that the above is true is the performance of the turtles themselves. Many of them didn't make money. This
wasn't because the rules didn't work it was because they didn't want to or couldn't follow the rules. By extension of the same few of
those who read this text will be successful speculating with the turtle system. This is because the reader will not have enough
confidence to follow them.
The turtle rules were very difficult to follow because they depend on capturing relatively infrequent trends. As a result of this many
months passed between winning periods and sometimes even a year or two could pass. During these periods it is easy to give reasons
why you doubt the system and therefore stop following the rules: What if the rules no longer work? What if the markets have changed?
What happens if the rules don't take into account something important that is happening?
How can I really be sure they work?
One of the members of the Turtle class, who was fired from the program before finishing the first year, suspected that important
information had been withheld in the group, and became convinced that there were hidden secrets that Richard would never reveal.
This profiteer could not face the simple fact that his poor performance was simply a result of his doubts and insecurities that resulted in
an inability to follow the rules.
"You can break the rules and get away. But the rules will end up breaking you for not having respected them." Quote from the book
"Zen in the markets" by Edward A. Toppel.
Another additional problem was the tendency to want to change the rules. Many of the turtles, in an effort to reduce the risk of their
operations, changed the rules very subtly which often had the opposite effect than expected.
An example: Failing to enter positions as quickly as the rules indicated (1 Unit every ½ N). While this may seem like a more
conservative approach the reality was that for the type of entry system the turtles used adding more slowly to positions increased the
likelihood of a pullback triggering stops. These subtle changes had a significant impact on profitability during certain market
conditions.
In order to build the level of confidence necessary to follow the rules of a speculation system regardless of whether it is the turtle
system or another similar or totally different one, it is imperative to do research using historical data. It is not enough to hear others say
that a system works. It is not enough to read summaries of research results carried out by others. You must do it for yourself.
You must get your hands “dirty” and get personally involved in the research. Dig into the operations, gain familiarity with the rules of
the system and the way the system operates and with the amount and frequency of losses.
It is easier to assume a loss period of 8 months if you know that there have been many loss periods of equal length in the last 20 years.
It will be easier to enter existing positions quickly if you know that entering quickly is a key part of the system's profitability.