Discover the important factors of trading through the Turtle Law

The Turtle Trading Rule was created by the famous trader Richard Dennis and is one of the few accepted mechanical trading rules that can consistently make profits. Richard Dennis taught this rule to 13 junior traders and set aside funds for them to operate. Over a period of four years, they achieved an average annual compounded return of 80%, which was a remarkable and very successful test. It proved that trading skills can be learned and trading profits can be achieved through a series of simple rules.

Although profit is not so simple, it has high requirements for human discipline and execution, and it is not easy to succeed by learning a few principles, but we can still find some important factors in trading on the Turtle Law. With the help of the master's vision to understand the truth, we can avoid some detours in trading.

First of all, the Turtle Rule is a trend-following system, and the basic idea of the trend-following system is to trade along the trend. On the premise that the trend will continue after it is formed, the Turtle Rule determines that the price enters the market when it breaks through the highest or lowest price of the previous 20 days, that is, the Turtle Rule believes that when the price breaks through the 20-day limit price, it is the time when the market is confirmed. At this time, the risk of intervention is reduced and the success rate is greatly improved. It can be clearly seen from the historical charts of the stock market or futures that the price always moves in a trending manner. When the price breaks through the previous period of consolidation, it will often continue for a period of time.

The focus of the Turtle Rule is not on market analysis, just as the focus of all trading is not on predicting the market. It is not important to accurately evaluate the market. What matters is how much you gain when you make a profit and how much you lose when you lose. And whether the risk you face is within the tolerance range. Homeopathy is only a minor aspect of the entire Turtle Rule. The reason why the Turtle Rule allows traders to navigate the unpredictable market with ease is its use of capital management. This set of rules has strict restrictions on position size.

According to the description in the original law:

Each trading unit = 1% of the account (N x value per point)

Where N is the average range of market price fluctuations.

From this formula, it can be seen that the factors that determine the size of a position include the volatility of the market, which is the maximum risk of the market. Taking into account the possible risks of the market in each trading position is the key to the success of the Turtle Rule. After determining the trading units, the Turtle Rule limits the maximum position size according to the market, which is 4 units in a single market and 6 units in a highly correlated market. At the same time, the famous American trading master Larry Williams also has unique insights in managing position size, which is written down to support each other with the Turtle Rule.

His formula is:

(Account balance x risk%) ÷ maximum loss = trading volume.

Larry williams also objectively limited the size of each trade, trusting the fact that anyone who has achieved success in trading knows how much to risk. If the trade is an ongoing event rather than a gamble or two.

Then the size of each position forms the basis of the transaction, and the objective and consistent use of position size control can control the risk within a knowable range, thus paving the way for subsequent operations. The turtle rule also limits the overall transaction size in another way, reducing the size of the total account by 20% every time the account loses 10%. That is, the funds that can be applied when the account loses money will decrease gradually, isolating the damage of continuous losses to the account.

The turtle rule is also very effective. Only one unit is allowed to be used each time a position is established, and the position is increased at an interval of 1/2N after establishment. This mode of adding positions requires a strict exit or stop-loss strategy. The turtle rule sets stop losses based on position risk, and the trading risk is controlled below 2%.

That is, when the risk reaches 2%, the position squaring stop loss. The exit strategy echoes the entry strategy. The long position is the lowest price on the 10th, and the short position is the highest price on the 10th. It is still the position squaring point with the breakout. Once the price passes through the exit and breaks the price, the position squaring leaves the market. In the trading strategy, adding positions, leaving the market, and stopping losses are all very important aspects. The Turtle Law makes the trading concept of expanding profits and reducing losses fully play through simple rules.

The trading factors discovered through the Turtle Rule can be summarized as follows: continue to use the same operating strategy, objectively limit the trading size, increase the position when the trade is profitable to expand the profit, and stop losses and reduce the trading size in time when the account is losing. Set specific points for stop losses and exits, and thoroughly execute the established plan without emotional influence.

The important thing about the Turtle's Law itself is that it eliminates human intervention, so that people do not have to affect trading performance due to emotional fluctuations, and control risks through careful fund management. Successful traders judge the market in various ways, but they are all similar in terms of fund management. They can draw on the money management ideas in the Turtle's Law to make practical plans.

Foreign research on transactions is very in-depth, and in some aspects it surpasses its peers in the industry, but it lags far behind China in terms of philosophy. After all, transactions are more like an art, and there is a deep philosophy behind the numbers. The principles of some things are the same, and whether it can be deeply understood depends on unremitting efforts. Finally, quote a sentence from the Book of Changes as the end: The world returns together and has a special path, and the world is consistent and has a hundred concerns. What do you think about?