What Is Turtle Trading and How Does It Work?

What is Turtle Trading?

In the 1980s, traders Richard Dennis and William Eckhardt developed the Trading Turtle strategy for futures and options. It uses methodical guidelines for buying and selling in an effort to capture long-term market patterns. This not only helps take advantage of market trends but also helps control risks. Strategies like the straddle options strategy can also complement the approach by leveraging market volatility.

• Rules for Entry and Exit: The strategy lays forth clear guidelines for getting into a trade during a breakout and getting out of it when prices decline or retrace.
• Risk management: To reduce possible losses, it employs predetermined risk management strategies, including stop-loss orders and position sizing.
• Trend Following: The approach aims to ride the price movements for extended periods of time, regardless of the direction, by adhering to market trends.
• Mechanical Approach: The rule-based approach lessens emotional biases and facilitates consistent trade execution.

 

Rules of Trading Turtles Strategy

Here are the key rules of trading turtles strategy you must know:

• Liquid Markets: In order to trade without upsetting the market with a large transaction, the turtles conducted futures contracts and looked for markets with high liquidity. The liquid market includes Bonds, commodities, energy, metals, nifty option chain and foreign exchange.
• Entry Criteria: You must buy when the price surpasses the previous 20-day high and sell when the price drops below the lowest low.
• Size of Position: Based on market volatility, you must decide how many units to trade. To control risk, choose the size of each trade using a predetermined percentage of total trading capital.
• Pyramiding: As the trend continues, gradually add to winning positions, increasing the trade size according to performance and market conditions.
• Stop Loss: To limit possible losses, place first stop-loss orders at a specific percentage below the entry price.
• Criteria for Exit: When the price drops below the previous ten days' lowest low, exit long holdings, and short positions when the price surpasses the previous ten-day high.

 

How Does Turtle Trading Work?

The turtle trading strategy relates to the rules mentioned above. It is purely based on a mechanical and legalistic approach. The theory is that you do not allow emotions to influence the decision-making process in any way. This mindset can also be applied when implementing call and put options or advanced strategies like the straddle options strategy to capitalize on market volatility.

Part of the knowledge that traders are disallowed from using includes rules to place orders. Many of them only use trading rules to make things up as they go if and when they feel it is necessary. However, deviating from the rules is counterproductive to the turtle trading strategy and even to the performance of the trade.

 

Conclusion

Turtle trading is a measured approach to trading and seeks to make long-term profits out of long-run trends. It consists of procedures on when to enter and exit a trade, risk management, and a diversification technique. Additionally, strategies like call and put options and tools such as the nifty option chain can enhance decision-making by providing deeper insights into the market. Calculating profit and loss in Nifty becomes crucial for traders aiming to apply these techniques effectively.