The Turtle Trading experiment is one of the most iconic stories in trading history. Conceived by legendary trader Richard Dennis in the 1980s, it proved that trading success could be taught using a mechanical system. This article breaks down the core components of the Turtle Trading System and shows how you can apply its principles to Forex trading today.
📘 1. What Is a Complete Trading System?
A complete trading system removes emotion and guesswork. It defines:
Markets: What to trade
Position Sizing: How much to trade
Entries: When to enter a trade
Stops: When to exit a losing trade
Exits: When to exit a winning trade
Tactics: How to execute trades
The Turtle System was fully mechanical, meaning every decision was rule-based. This consistency helped traders stay disciplined even during drawdowns.
🌍 2. Market Selection
The original Turtles traded highly liquid futures on U.S. exchanges. For Forex traders, this translates to:
Focus on major currency pairs (EUR/USD, GBP/USD, USD/JPY)
Avoid illiquid or exotic pairs with erratic spreads
Ensure your broker offers tight execution and low slippage
📏 3. Position Sizing with Volatility (N)
The Turtles used a volatility-based formula to size positions. They calculated N, the 20-day exponential moving average of the True Range, now known as ATR.
Formula:
N = (19 × Previous N + Current True Range) / 20
Then they calculated the Unit Size:
Unit = (1% of Account Equity) / (N × Dollars per Point)
In Forex, you can adapt this by:
Using ATR to measure volatility
Risking a fixed percentage of your account per trade (e.g., 1%)
Adjusting lot size based on pair volatility
🚀 4. Entry Rules: Breakouts
Turtles entered trades on breakouts:
Short-term breakout: 20-day high/low
Long-term breakout: 55-day high/low
If price broke above the high, they went long. If it broke below the low, they went short.
Forex adaptation:
Use Donchian Channels or custom breakout indicators
Confirm breakouts with volume or momentum (e.g., RSI, MACD)
🛑 5. Stop Loss Strategy
Stops were placed at 2N below the entry price for long trades, and 2N above for short trades.
This ensured:
Losses were capped
Position sizes were aligned with volatility
Tip: Use ATR-based stops in Forex to maintain consistency across pairs.
🎯 6. Exiting Winning Trades
Turtles exited trades when:
Price hit a 10-day low (for long trades)
Price hit a 10-day high (for short trades)
This trailing stop method locked in profits while allowing trends to run.
Forex tip: Combine trailing stops with partial profit-taking to balance risk and reward.
🧠 7. Psychology and Discipline
Richard Dennis famously said:
“You could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline.”
Most traders fail not because of bad systems, but because they abandon good systems during drawdowns. The Turtle System worked because traders followed it religiously.
🔄 8. Risk Limits and Diversification
The Turtles used strict risk limits:
| Risk Level | Max Units |
|---|---|
| Single Market | 4 |
| Closely Correlated Markets | 6 |
| Loosely Correlated Markets | 10 |
| Total Directional Exposure | 12 |
In Forex, this means:
Limit exposure across correlated pairs (e.g., EUR/USD and GBP/USD)
Avoid over-leveraging in one direction
🧪 9. Applying Turtle Logic to Modern Forex
To implement a Turtle-style system today:
Automate your entries and exits using breakout logic
Use ATR for position sizing and stop placement
Diversify across major pairs
Track your trades and stick to your rules
Backtest thoroughly before going live
💡 Final Thoughts
The Turtle Trading System is more than a set of rules it’s a philosophy of discipline, risk control, and mechanical execution. While markets have evolved, the principles remain timeless. Whether you're trading Forex, crypto, or commodities, the Turtle mindset can help you stay consistent and profitable.
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