Turtle Trading Channel
If you’d like to follow along with the e-book version of the blog, click on the play button in the audio player below (at the bottom of the page).
Slow And Steady Wins The Race
Anybody remember the story about the rabbit and the hare (turtle)? I do. It’s kind of like trading. We’re sure you recall both VP and us here at Stonehill Forex using terms like “daily chart” and “long game” before. Those aren’t just sexy terms. They actually represent a type of trading philosophy. Scalpers and day traders get the crap kicked out of them on a regular basis for a reason. Numerous studies have been conducted, and it was discovered that “Approximately 1-20% of day traders make money day trading (which means between 80-99% do not). Just a tiny fraction of day traders make any significant amount of money.”
Don’t Tell Anybody
This week, we’re going to review an indicator that won’t be found on the VP’s NNFX channel due to his operational schedule. That being said, we’re going to take advantage of that like sugar saturated kids in a candy store without supervision. We decided to profile something a bit out in left field and take a journey back into history just a bit for a fascinating study and look into an indicator that came from that experiment. Also, be sure you read some important notes below the testing results. We’ve got some announcements, which will be discussed in the video as well.
Mail Call
Lots of action this past week. We received indicators, and even one that was a huge repainter (the submitted suspected as much) that we’ll add to our repainter list. We appreciate your spirit of contributory collaboration. Keep on sending those bitch’in thingamabobs to [email protected], and, thank you.
I Want My MTV
Back in 1983, there was a guy named Richard Dennis who had a partner named William Eckhardt. Richard turned $5,000 into more than $100 million and believed that anybody could become a successful trader using simple rules. Keep in mind, they weren’t trading Forex, they were trading the futures market…in any event, his partner William believed that wasn’t the case and cited that Richard was a very “gifted” trader, not a bunch of silly rules. Their discussions led to an experiment called “Turtle Trading”.
The Experiment
The experiment was simple. Richard recruited 14 traders (called Turtles) out of the thousands that applied through the use of a true/false questionnaire. He was so sure that his program would be successful, he even funded the traders with his own hard-earned cash. Training only lasted two weeks and was based on trend trading. Hmm…trend trading, not reversal trading. Doesn’t that sound familiar? Another sexy term we often use.
Did It Work?
The result was that the two classes Richard personally trained earned more than $175 million in just five years. Despite its spectacular success, there was a downside to the system; DRAWDOWNS. Remember those? The definition of a drawdown is how far your account value declines during a specific period from its peak (highest value) to the trough (lowest value). The drawdowns were very deep using this setup, and practitioners of the Turtle Trading system could expect to be correct about 40%-50% of the time. Coincidently, we wrote a blog on drawdowns called, “Trading Losses – How much is too much?” and illustrated how drawdowns can wipe out your account, and even more difficult, what it takes to get it back to where you started. There’s even an accompanying video on our YouTube channel, you can watch from within the blog. Check it out HERE.
What’s the Magic
Interestingly enough, there wasn’t really a lot of magic going on. The simplified rules are itemized in the list below.
1. Entry: Buy when the price breaks above the 20-day high
2. Stop loss: 2 ATR from the entry price
3. Trailing stop loss: 10-day low
4. Risk management: 2% of your account
5. Vice versa for short trades
A bright individual who goes by the moniker “Point Zero” coded this indicator in 2015 based on the rules that Richard put together. There were some minor adjustments made in the code to prevent small charting issues from occurring, but overall…darn near close enough to be an excellent representation. And since you know we never leave good enough alone, we’re going to be tweaking things to see if we can get better results. But, you already knew that, didn’t you?
Turtles on The Chart
Below are the default settings of the Turtle Trading Channel indicator in all its color change confirmation glory. Except for thickening up the signal lines, we left the rest of it alone. There are some very faint gray lines which create a kind of midpoint to the channel, but they’re barely noticeable, so we just left them alone. Feel free to zap them with the “none” in the colors tab of your settings menu if they distract you. Naturally, the candles have been drained of their color to keep you focused on the main dealio, the indicator.
Settings
There are a handful of settings that we’ll talk about. Only two are critical, one is minor, and the last two are optional.
TradePeriod: Step “1” of the system, or the entry value. The default value is 20.
StopPeriod: Step “3” of the system, or the trailing stop value. The default value is 10.
Strict: Applies “strict” money management rules to the signal lines, changing them slightly (we’ll post a picture below). The default value is “false”.
DisplayAlerts: Allows alerts to pop up on your screen. The default value is “false”.
MailAlerts: Permits the platform to send you those alerts to your email. The default value is “false”.
Advantages
* It has an awesome “gee whiz” factor based on its history.
* Easy to read signals
* Enough variables to make it interesting.
How we use it.
To clarify specific concepts relating to the NNFX system. There are three possible trade actions;
OPENING A TRADE
CLOSING A TRADE
MAINTAINING A TRADE
One of these three actions need to happen in the last 30 minutes prior to the close. This is when you make your trading decisions, and not actually wait for the close at 1700 EST, because we trade on the daily time frame.
Long signal: When the signal line changes from red to blue. Entry is in the last 30 minutes of the trading day.
Short signal: When the signal line changes from blue to red. Entry is in the last 30 minutes of the trading day.
And The Mark-up
Not So Bad, Eh?
Actually, not too bad, considering an entire system from 1983 is stuffed into an indicator. The signals were a bit late, but recall that the entire premise is based on the existence of a trend…predicated on simple moving averages. Love it or hate it; if you’ve got the time and motivation, kick the tires, take it for a spin, and see if it’s something that deserves a spot in your tool box.
Just For Grins
Because we’re busybodies, we decided to lay the two moving average lines (blue and yellow) over price to see how they aligned with the indicator’s default signals. There are some correlations we noticed, even though they weren’t exact, they were a few notable points of interest…
Strictly Commercial
Frank Zappa would want us to include a comparison of the signals with the “Strict” setting toggled between False and True because he was a man of integrity. That being the case, we are definitely going to include this setting in our testing criteria, because it can make a difference, and the coder was kind enough to include it. We overlaid one chart with the “Strict” setting toggled to true and noted where the differences were in the green ovals.
Testing, It’s What We Do
If you’re new to these studies, we recommend looking at some of the older blogs to understand how we conduct our testing.
The six pairs we recommend testing are…
EUR/USD
AUD/NZD
EUR/GBP
AUD/CAD
CHF/JPY
CAD/SGD
The markets we test our indicators are the:
EUR/USD (Euro/US Dollar)
BTC/USD (Bitcoin/US Dollar)
XAU/USD (Gold/US Dollar)
SPX500 (S&P500 Index)
Timeframes and Results
We’ll run the Turtle Trend Channel indicator on the EUR/USD, BTC/USD, XAU/USD, and the SPX500 using the default and tweaked settings across the daily and 4-hour timeframes on the MT4 strategy tester.
We focus on three metrics;
Total trades
Win/Loss ratio
ROI (return on investment)
Results to Wrap Up and Take Home
Below are the results from our testing undertakings.
Alright, Alright, Alright
Again, not too bad. Gold really knocked it out of the park, as we expected and as a bonus, the default settings were the best ones on the 4-hour chart, and BTC did nicely after the tweaks. The SPX500 and EUR were a bit on the low side, but the fact is that we were able to make it better. Try it out on your own, it can’t hurt, and you’ll either find that it has a place like a favorite pen clipped over your pocket protector, or it will find its way into your trash file. Either way, it’s free, it’s fun, and it can possibly help you make some profits.
Special notices!
* First, we put out the October digest yesterday. If you did not receive it, see the instructions of how to get it below. It was reformatted into an easier to read document.
* Second, there is now a short survey on the Stonehill Forex home page, where which we hope everybody will participate. Your input will help guide our direction with regard to the things we do here at Stonehill Forex.
* Third, we’re adding pages to the site.
1. The first page is a “Marketplace” where we encourage those with coding skills (or other relevant Forex expertise) to want to get their information out there. However, the way you want payment is totally up to you. That’s your business. We’re just bringing people together. Shoot me an email ([email protected]) with relevant information to place on the page.
2. The second is the repainting indicator page we spoke of in the past. We find many repainting indicators in our quests and figured it would be helpful to list them. Each profiled repainter will have an accompanying video, which will be housed in a separate playlist on YouTube.
Money Management
Money management is based on the NNFX risk profile. That information can be learned in the Advanced Course.
Resources
We’ve made the Turtle Trend Channel indicator available for download on our site from the indicator library, for free. When you’re ready to get it, click HERE.
We’re Here For You
Don’t forget to sign up for the latest digests. We just put one out and it’s a great one. If you missed it, be sure to sign up on the website and email [email protected] with the title “Latest Digest Please” and we’ll send the most recent one off to you within 24 hours.
Other Resources
Be sure you’re subscribed to our YouTube channel for the technical analysis videos which pair well with these blogs…like ketchup and mustard. Don’t forget Facebook and Quora, where we answer questions relating to Forex.
Our only goal is to make you a better trader.
BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.